I won't get too technical, but here's the main idea behind quantum computing: Traditional computers, like the one I'm using to write this article, depend on binary "bits" of information -- things that can exist in two states (generally referred to as 0 or 1). If you've ever heard of binary code, this is how it works, by using a combination of zeros and ones to convey information.
Unfortunately, this has its limitations in terms of how fast computers can be.
Quantum computers, on the other hand, use "qubits," which use the laws of quantum mechanics to exist in many possible states. This is a simplification, and there's quite a bit more to it than this, but that's the basic idea. Theoretically, large-scale quantum computers will eventually be able to solve problems in minutes that would take a traditional computer hundreds of years. This could have massive implications for some of the advanced technologies that are rapidly evolving today, such as artificial intelligence, autonomous vehicles, and more.
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To put it mildly, there are some problems that need to be solved before quantum computing can come close to realizing its potential and reach commercial viability. But this is a massive market opportunity, and you can invest in this massive technology trend while it's still in the early stages of its evolution.
The Defiance Quantum ETF
Although quantum computing is an interesting investment opportunity, choosing individual quantum stocks can be challenging. There are promising pre-revenue start-ups like Rigetti Computing (RGTI 5.05%), massive tech behemoths with quantum computing operations like IBM (IBM 0.57%), and everything in between. There are also adjacent opportunities -- meaning companies that won't produce quantum computers but will benefit from them.
That's why I'm leaning toward the exchange-traded fund (ETF) approach. One particular quantum computing ETF that has found its way to my watch list is the Defiance Quantum ETF (QTUM 2.67%).
NASDAQ: QTUM
Key Data Points
The Defiance Quantum ETF tracks an index of quantum computing stocks and owns 79 companies in its portfolio. Rigetti is the top holding, but it only makes up 3.3% of the assets, so it's not a particularly concentrated fund. Other top holdings include Advanced Micro Devices (AMD 3.46%), Intel (INTC 5.68%), D-Wave Quantum (QBTS 5.71%), and Tower Semiconductor (TSEM 0.69%), just to name a few.
In a nutshell, if quantum computing ends up being the technological revolution that many experts think it will be, this ETF allows you to benefit regardless of which individual companies end up the biggest winners. It is a diversified collection of dozens of computer manufacturers, chipmakers, software companies, and more, all of which have a lot to gain if quantum computing as an industry reaches mainstream viability.
The ETF has an expense ratio of 0.40%, which is high compared to, say, an S&P 500 index fund, but is very much on the lower end when it comes to specialized ETFs. For example, it's tough to find an artificial intelligence or robotics ETF with an expense ratio below 0.6%, so this is actually a quite reasonable fee structure.
Should you buy the Defiance Quantum ETF right now?
Let's be clear. Quantum computing is an industry in its infancy. Even if you invest through a well-diversified ETF like this one, it's wise to expect a roller-coaster ride for the foreseeable future. And if things don't go as well as expected for the technology, you could potentially lose significant money. Of course, the ETF has plenty of large-cap, mainstream tech stocks that should be fine regardless of what happens with quantum computing, but there are also plenty of pure-play quantum stocks.
Having said all of that, I'm considering opening a relatively small position in the Defiance Quantum ETF to add some quantum computing exposure to my portfolio. An ETF that focuses on an early-stage technology like this isn't for everyone, but it could be a big winner if quantum computing ultimately becomes a mainstream technology.
