Quantum ETFs: An Investment to "quantumplate"?

In today's world, we rely on supercomputers to solve complex problems, from weather forecasting, climate research, portfolio risk management to molecular modeling.

These are extra-large classical computers, often with thousands of classical CPU and GPU cores. Despite their advanced computational power, they aren't good enough at solving certain types of problems. This is where quantum computers come in.

In this article we introduce you to the world of quantum computers, their applications and growth potential, main market players, and how to get invest through Quantum ETFs.

What is Quantum Computing?

The term Quantum Computing seems headache-inducing. It seems complicated, futuristic, and only comprehensible for people with Einstein's IQ level.

Simply put, quantum computing applies the power of quantum mechanics, to solve certain complex problems faster than any supercomputer known to mankind. Quantum mechanics itself, is the science that describes the behavior of matter and light on the atomic and subatomic scale. This includes molecules and atoms and their constituents like electrons, protons and neutrons.

By tapping into quantum mechanics, quantum computers handle information in a fundamentally different way than “classical” computers like smartphones, laptops, or even today’s most powerful supercomputers.

How does Quantum Computing differ from Classical Computing?

Classical computers are programmed with bits as data units (0 and 1). Quantum computers use so-called bits, which can represent a combination of both zero and one at the same time, based on a principle called superposition. It’s this difference that gives quantum computers the potential to be exponentially faster than today’s mainframes and servers. Quantum computers can do multiple calculations with multiple inputs simultaneously. Today’s computers can handle only one set of inputs and one calculation at a time.

A quantum algorithm IBM has been using can speed up processes to an unimaginable level. Let's say you wanted to find an item in a list that has N items. On a normal computer you'd have to check half of the items on average, or in the worst-case scenario, end up checking them all. On the quantum computer however, the item is found after checking roughly √N (square root) of them. To put this in perspective, if one item needed to be found in a list of 1 trillion items, and each item took 1 microsecond to check, it would take a classical computer 1 week to find it, while a quantum computer would do the job in 1 second!

To learn more about the world of quantum computing and its complexity, this animated YouTube video provides a fun breakdown. If you prefer podcasts, podcast star Joe Rogan once asked Sean Carrol, an American Physicist, about Quantum computing, you can check it out here.

Quantum Computers in real life: Uses cases

According to CB Insights, Quantum computers can be used across different industries for different use cases, including:

• Healthcare: genome sequencing, simulating chemical reactions, prediction of protein folding and other.
• Finance: portfolio risk optimization, fraud detection, improving forecasting models and Monte Carlo simulations.
• Cybersecurity: improve cybersecurity and counter hackers with quantum computing ability using quantum cryptography or quantum key distribution (QKD).
• Blockchain and Cryptocurrencies: for example, 25% of Bitcoin are stored in a way that can be stolen by quantum-computing equipped thief. The technology can eventually become powerful enough to interfere with transactions, undermining the integrity of the whole blockchain system. A Quantum Resistant Ledger is being developed to prevent that from happening.
• Artificial Intelligence: increased ability of simulating complex models, solving optimization problems, parsing through millions of data sets, advance the use of computer vision, voice and pattern recognition and machine translation among other.
• Logistics: running complex calculations to efficiently pack parcels, optimize global delivery routes and improve traffic flows.
• Manufacturing and Industrial Design: for example, a quantum computer can calculate the most efficient wing design for an airplane in reduced time. It can be also used in materials science, advanced analytics and risk modeling.
• Agriculture: quantum computers can find ways to produce cheaper and more efficient fertilizers. It can simulate different chemical reactions and help find a better way to create ammonia, a key ingredient in fertilizers.
• National Security: governments can use quantum computing to run battlefield simulations, create stronger/lighter materials for tanks or even break spy codes.

Current market status and future outlook

According to Markets and Markets latest report, The Quantum Computing market size is expected to reach $1.77 billion by 2026 from $472 million in 2021, at a CAGR of 30.2% during the forecast period. Banking and finance sectors are expected to be the driving force of the quantum computing as well as the increased investments by governments to research and develop activities related to quantum computing technology.

Investing in Quantum Computing

Quantum Computing is still at its early stages. However, there are many blue-chip companies and startups working to take the industry to a whole new level, some of them are publicly listed, including:

• Airbus
• Alibaba
• AT&T
• Baidu
• Booz | Allen | Hamilton
• British Telecommunications
• Google
• Honeywell
• IBM
• Intel
• KPN
• Lockheed Martin
• Microsoft
• Mitsubishi
• NEC
• Nokia
• NTT
• Raytheon
• SK Telecom
• Toshiba

To find out more about what each company is doing, you can check out CB insight's overview. For an expanded breakdown of all public and private companies involved in quantum computing spectrum, Boston Consulting Group, Tracxn, Everest and Tactics have created market maps that show which and how companies are positioned in the industry. That will give investors fishing for opportunities a good starting point for their due diligence.

Investing in a Quantum ETFs

Unfortunately, finding a long-term ten bagger in the quantum universe is still farfetched. There will be a lot of bumps along the way, especially with such a complicated young technology. However, Exchange Traded Funds (ETFs) can be a great way to gain access to the quantum computing industry and minimize risk through diversification.

There's one Quantum ETF out there that can provide such exposure, and it's the Defiance Quantum ETF or QTUM. The fund has $172 million in assets under management and is invested in companies involved in cloud computing, quantum computing, machine learning, and other transformative computing technologies.

QTUM subsector exposure include Quantum Computing Technology (33.7%), Machine Learning Services (21.54%), AI Chips (20.43%), GPU & Other Hardware (12.89%), Big Data & Cloud Computing (8.33%) and Quantum Computing Equipment (3.07%).

In terms of countries exposure, the United States has the highest exposure (61.71%), followed by Japan (13.4%), Netherlands (4.2%), Taiwan (3.66%) and France (3.65%).

QTUM 70 holdings include:

1. Analog Devices (2.81%)
2. Synaptics (2.51%)
3. Advanced Micro Devices (2.38%)
4. Ambarella (2.35%)
5. Nvidia Corporation (2.30%)
6. Xilinx (2.19%)
7. ON Semiconductor Corp. (2.07%)
8. Lattice Semiconductor Corp. (2.02%)
9. Cadence Design System (1.84%)
10. Marvell Technology Inc. (1.80%)
11. Check the full holdings

Since inception on September 4th, 2018, the fund has outperformed (+136%) both the S&P500 (+64%) and the NASDAQ 100 (+123%). QTUM trades primarily on the New York Stock Exchange and has an expense ratio of 0.4%.

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