X Funds CEO on AI Growth, Tech Exposure and Income Strategies

In this NYSE Live interview, David Nicholas, CEO of X Funds, discusses the launch of the X Funds Technology Income ETF (VGTX) and explains the firm's approach to combining technology sector exposure with an options-based income strategy.Nicholas begins by discussing the performance and influence of the technology sector over the past decade and explains why X Funds sees continued interest in technology-focused investment strategies. He outlines the rationale behind creating a fund that seeks both technology exposure and income generation through options-related techniques.A significant portion of the conversation focuses on the structure of VGTX. Nicholas explains that the fund combines investments in technology-related holdings with a put spread options strategy. He discusses how this differs from covered-call approaches frequently utilized by other income-oriented products and shares his perspective on how options strategies can interact with growth-focused sectors.The interview also examines the relationship between market volatility and options-based income generation. Nicholas explains how options premiums may be influenced by changing levels of volatility and discusses why managers using options strategies often pay close attention to volatility trends.Artificial intelligence is another major topic throughout the discussion. Nicholas describes how AI-related spending continues to affect technology markets and highlights areas of the supply chain discussed during the interview, including semiconductors, memory technologies, computing hardware, and infrastructure providers supporting AI development.The conversation further explores emerging themes in technology. Nicholas discusses robotics and the potential for AI-enabled applications beyond today's infrastructure buildout, while emphasizing the continued importance of the hardware and technology ecosystem supporting AI deployment.Throughout the interview, Nicholas provides insights into technology-focused investment products, options strategies, volatility dynamics, AI infrastructure, semiconductor markets, and broader trends shaping innovation across the technology sector.Disclaimer: Informational content only. NYSE does not endorse or recommend investments, strategies, companies, products, or services discussed.

substantial growth in the AI trade coupled with volatility could give investors a reason to take a measured approach to the sector.

The ETF from Xfunds that launched last week aims to help investors manage both growth and risk.

Joining me now with more is David Nicholas, CEO of Xfunds. David, great to have you on the show this morning. The Xfunds Technology Income ETF, ticker symbol VGTX trades on NYSE Arca. Tell us about the investment approach.

Yeah, Kristen, excited to be here to talk about it. You know, if you just look at technology as a whole, I mean, technology has really dramatically outperformed the S&P 500 over the last decade.

Really, that's where wealth creation has come from. It's been the technology sector. Compounded 26% annualized returns over the last decade. So with VGTX, what we're doing is we're taking a very popular sector, right?

Even VGT, which is a very popular technology fund, but we're also pairing that with an options overlay because many times you think of technology, you can't mix that with income.

And we're actually the first issue to say, hey, we're going to take a very growth-oriented sector, but also pair that with an options overlay so you can get exposure to growth, generate income at the same time. We think it's a really creative and great offering for investors.

Why is now the right time to launch this fund?

Yeah, if you if you just look at the the holdings of the fund, this really sits at the intersection of where all the growth is coming from. If you look at uh obviously the AI space as a whole, you've got the AI spenders, you've got the suppliers.

And really, we see where the suppliers are driving a lot of this growth. And so if you just own a fund like S&P 500, you're going to miss out on, I would say, a decent waiting size to companies like MU that are trading at a great discount but are really driving growth forward.

You're going to not get good waitings to names like Intel. And so I always think people, if you look at your portfolios, many people have S&P and QQQ and there's an 80% waitings overlay between the two, why we think a technology exposure for this moment with AI driving growth is the right sector to have in your portfolio.

How does the VGTX ETF maintain the potential for capital appreciation?

Yeah, and that's really the the heart at what this fund is all about. If you look at a lot of other of our competitors or income funds, they sell covered calls, which covered calls typically are going to tap your growth on the upside. We take the opposite approach. I've been trading options for over 20 years.

We actually do put spreads. So we we are long the underlying position, and then we add a put spread and what that does is it gives us full uncapped exposure to the underlying technology sector.

And then our put spread, as long as that fund is above our short strike, we get all of the upside growth and we get income on top of it. So for a sector that's been growing by, you know, 25% annualized return,

we have the potential of adding 12 to 15% of a year of additional income on top of an uncapped technology sector. So we're doing that through put spreads, unlike covered calls, the usual covered calls like most of our competitors.

How does it take advantage of volatility?

Yeah, and that's what that's one of the things when you're an options seller, volatility is actually your friend. And so again, we don't mind a little volatility in the technology center sector. Why? Because that means we're going to generate more premium for the puts that we're selling.

So if you look at VGT was up over 6% last month, had a pretty incredible month, crushed the SP 500, but with that volatility, we're going to be sellers of volatility. We harvest that volatility premium, and we distribute that back out to our investors in the form of distribution.

As the sector matures, we often see waves of growth. How do you see the reach of the next wave of technology growth playing out?

Yeah, and this is where, you know, so many of our conversations revolve around AI and and where will AI, how will it impact, what sectors will it impact. But I I really just think we're scratching the surface. Uh, you know, robotics for us is a is a next layer leg up of really taking the AI infrastructure and put it into real life application.

So if you just think about it, the demand that's still needed, if you just look at uh uh semiconductor growth, average analyst forecast for semi's growth is still upwards of 120% earnings growth over the next 12 months.

So we think you still push the glass on the suppliers. These are going to be your hardware, these are going to be your microchips, uh these are going to be your semis, uh NAND, uh high band with memory. You push the the the gas on those names because that's where the growth is still going to come from over the next three to five years.

Finally, uh we're going to leave it there, but thank you so much for joining, of course. We could talk all day about what sectors might be next. That's David Nicholas, he's CEO of Xfunds. David, thanks again.