AOT Invest believes that not all software exposure should be based on market cap, and that profitability is important.
On Tuesday, the firm launched the AOT Software Platform ETF (NYSE:AOTS), a new ETF aimed at capturing companies that build the foundation of modern digital applications, from cloud infrastructure to payments and enterprise software. Instead of just tracking the largest names in tech, the ETF uses a quality-focused framework that filters and weighs holdings based on profitability and efficiency measures.
The index includes 50 companies, each capped at a maximum weight of 7.5% and a minimum of 0.5%. To be eligible, at least 20% of revenue must come from software activities. The top five holdings, namely, Nvidia Corp (NASDAQ:NVDA), Meta Platforms, Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), Amazon.com Inc (NASDAQ:AMZN), and Alphabet Inc (NASDAQ:GOOGL), together represent 32.9% of the fund. Other notable names in the top ten include Netflix Inc (NASDAQ:NFLX) and Oracle Corp (NYSE:ORCL).
AOTS follows the AOT VettaFi Software Platform Index, which ranks companies using three equally weighted factors: cost of goods sold compared to revenue, earnings-to-price ratio, and return on invested capital. Only companies with positive price-to-earnings ratios make the list, which is a significant change from many growth-focused technology ETFs that include unprofitable businesses. The fund has a 0.49% expense ratio, according to the prospectus.
This broad sector reach is a key feature of the strategy. While the fund includes well-known technology leaders, it also contains companies that are typically classified outside of tech but rely on software platforms. Payments companies Visa and Mastercard together make up 10.5% of the portfolio, reflecting the index’s belief that software-driven business models extend well beyond Silicon Valley.
AOT argues that this strategy is particularly well-suited for the next stage of artificial intelligence adoption. The firm states that software platforms usually operate with nearly zero marginal costs at scale and benefit from recurring subscription revenue, a combination that can boost profitability as AI demand rises.
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