The Anti-AI ETF: Investing in Tangible Assets Amidst Tech Dominance

LOHA's strategy is built on the premise that businesses with significant physical footprints and operational complexities offer inherent competitive advantages that cannot be easily replicated by software-centric competitors. The fund's primary holdings, including Cummins, AutoZone, and TFI International, exemplify this approach by representing industries like engine manufacturing, automotive parts distribution, and freight transport. These companies rely on extensive physical networks and specialized manufacturing capabilities, providing a distinct investment profile compared to the high-growth, often volatile, AI and software sectors. Despite being marketed as an "anti-AI" fund, some of its core holdings, such as Cummins, paradoxically benefit from the AI boom by supplying essential infrastructure like backup generators to data centers, highlighting an interesting dynamic where the physical economy underpins the digital one.

The Strategic Rationale Behind Investing in Tangible Infrastructure

The core principle behind the Roundhill Heavy Assets and Low Obsolescence ETF (LOHA) revolves around the belief that companies with substantial physical infrastructure, entrenched distribution channels, and long-lasting capital possess a fundamental competitive edge. In an era dominated by rapid technological shifts and the pervasive influence of artificial intelligence, LOHA aims to offer investors a stable alternative by focusing on businesses whose value is rooted in tangible assets rather than easily reproducible software code. This strategic choice is designed to shield portfolios from the potential obsolescence risks associated with purely digital enterprises, where a competitor can quickly replicate or supersede existing intellectual property with new code. By investing in sectors that require significant capital expenditure and time to establish, LOHA targets companies with durable "physical moats" that deter new entrants and maintain long-term value.

The investment thesis suggests that a company's competitive position is significantly strengthened when it depends on physical scale, such as extensive manufacturing facilities, intricate distribution centers, vast truck fleets, or a nationwide network of retail locations. For instance, replicating the operational efficiency and market penetration of a company like AutoZone, with its extensive aftermarket auto parts network, would necessitate building thousands of stores and stocking a diverse inventory across numerous locations—a feat that no software startup could achieve merely through algorithmic innovation. Similarly, securing large-scale agreements, like Cummins' multi-year contracts for backup power generators crucial for AI data centers, demands established foundries, deep engineering expertise, and navigating complex regulatory environments, none of which can be conjured by a software model. These examples underscore LOHA's commitment to companies where physical presence and operational depth are paramount to their success and resilience.

Evaluating the Resilience of Physical Assets in a Dynamic Market

While the investment in heavy assets offers a unique hedge against the volatility of technology-driven markets, it is not without its challenges. Companies relying on significant physical infrastructure are inherently capital-intensive and often subject to cyclical economic trends and commodity price fluctuations. For example, a company like Lennox, a prominent holding in the LOHA ETF, experienced a considerable decline in residential revenues due to factors such as elevated mortgage rates and reduced consumer confidence. Similarly, the margins of a mining company like Newmont, another key holding, are closely tied to the volatile price of gold. These examples illustrate that while physical assets can offer stability, they also expose investors to operating leverage that can cut both ways, amplifying returns during economic upturns but also exacerbating losses during downturns.

LOHA's approach to portfolio management, which includes equal weighting and quarterly rebalancing of its 100 U.S. company holdings, serves to mitigate some of these risks. This mechanical rebalancing strategy ensures that the fund trims positions that have performed well and adds to those that have lagged, preventing over-reliance on any single winner. This behavior stands in stark contrast to cap-weighted technology indices, which often concentrate their exposure in a few dominant companies. Consequently, LOHA acts as a genuine diversifier at the business-model level, offering exposure to industries like engines, trucks, HVAC systems, and gold mining. While LOHA is still a relatively new fund with a short track record and liquidity considerations, it is primarily designed to provide diversification when market leadership shifts, rather than to lead an AI-driven rally. Therefore, investors should consider it as a strategic allocation, typically a small sleeve (3% to 7%) within a broader portfolio, to counteract the heavy tech overlap found in many conventional broad-market indices.