3D Printing ETF: A Good Long-Term Pick?

3D Printing technology investing has lately become one of the most talked-about topics. The pure-play 3D Printing ETF PRNT has added about 10.2% since its inception in mid-July.Not only this, the fund tacked on over 5.6% gains in the last five days (as of September 9, 2016). Though the fund retreated about 2.2% on September 9, the reason was the broader market crash and not the fund’s inherent performance.

While the technological strength of 3D printing has been a cause behind the uptrend, the latest boost was provided by General Electric’s (NYSE:GE) acquisition announcement of two European 3D printing companies for about $1.4 billion (~£1 billion) last week. The two companies are globally renowned manufactures of machines used for 3-D metal printing (read: 3D Printing ETF (PRNT): What Investors Need to Know).

Inside GE’s Increasing Exposure to 3D Printing

The two acquired companies, namely Swedish-based Arcam AB and Germany’s SLM Solutions Group AG, will now come under GE Aviation. The business segment plans to use 3D printing more often in its power turbine and medical equipment businesses, going by the source.

Investors should also note that GE intends to buy about 1,000 new 3-D printing machines over the next decade. The latest acquisition will likely lower GE’s costs by $3 billion to $5 billion. As per the factsheet of the 3D Printing ETF, GE Aviation expects to print over 100,000 parts for its jet engines by 2020.

As per Wall Street Journal, “the deals are part of the industrial giant’s drive to make for itself the machines it will use to produce more 3-D printed parts over the next decade.” All in all, GE’s move to tap the increasing usage of 3-D printing technology gives investors every reason to binge on this segment.

With GE dropping the hammer, many have started speculating a surge in merger and acquisitions in the 3D printing space. Another 3D printing company Stratasys Ltd. (NASDAQ:SSYS) also engaged itself in strategic partnerships with the likes of the Boeing Co. (NYSE:BA) , Ford Motor Co. (NYSE:F) and Siemens. The associations are intended to bring up advanced 3D printing technologies to the aerospace and automotive industries (read: Upbeat Aerospace & Defense Earnings Boost ETFs).

Favorable Factors

ARK Investment Management LLC expects 3D printing to transform manufacturing by narrowing the time between design and production, cutting costs, and providing greater efficiency. As the cost structure will go downhill, the 3D printing market will rule over traditional manufacturing.

Several analysts offered bullish growth projections for this industry. McKinsey projects the 3D printing market to grow from $4 billion in 2014 to between $180 billion and $490 billion by 2025. Gartner Research sees more-than-double 3D printer shipments between 2016 and 2019. Most importantly, the space is still at a nascent stage and thus has room for upside.

Inside PRNT

The fund looks to track the total 3D-printing index. The index consists of equity securities and depositary receipts of exchange listed companies from the U.S., non-U.S. developed markets and Taiwan that are engaged in 3D printing related businesses. The fund charges 66 bps in fees.

The top three holdings are SLM Solutions Group AG (7.29%), ARCAM AB (6.59%) and Exone Co (5.80%). The 3D Printing Hardware segment makes up half of the portfolio followed by CAD & Simulation software (30%) and Service Centers (13%) (see all industrials ETFs here).

The fund has a tilt toward smaller-cap stocks with about 65% exposure. As far as sector-exposure is concerned, IT accounts for about 52.9% of the basket while industrials (32%) and health care (11.3%) round out the next two spots.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>