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Thematic indices are often synonymous with growth and many like these indices OGIGX, BCHAINand FUTURE Focusing on internet giants, blockchain/crypto stocks, and electric and autonomous vehicles currently have major tech companies as their key constituents. In late 2020 and 2021, many of these tech-focused companies were able to excel and expand their operations, including aggressive hiring. But now the US stock market (as measured by the S&P 500) is down 19.7%. course of the year, inflation is still high and the Fed hiked rates for the sixth time on November 2nd. Companies that have grown strongly are now taking cost-cutting measures — and perhaps the most visible change for investors has been large-scale layoffs and hiring freezes. While layoffs often indicate a flagging economy, it’s important to look at individual company layoffs in the context of broader employment trends, and also to recognize that layoffs (along with a more profound strategic restructuring) could actually be a positive catalyst for an ailing company.

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High-profile layoffs don’t necessarily reflect the broader economy.

As the chart above shows, several large tech companies have announced either layoffs or hiring freezes in recent weeks. Twitter announced it would lay off half of its workforce (around 3,700 employees – although some employees have reportedly asked to return). metaplatforms (META) has also announced that it will lay off 11,000 employees (13% of its workforce) in the first major downsizing in the company’s history. But these high-profile layoffs don’t seem to be indicative of the broader economy, let alone the tech sector, so far. It is difficult to transmit individual company layoffs to the wider labor market for a number of reasons. First, economic data tends to be reported with a lag — for example, the Bureau of Labor Statistics reported its preliminary job vacancy and labor turnover survey (BACK) Figures for September on November 1st. Assuming that the layoffs announced in recent weeks happen relatively quickly, they may not be reflected in economic data until early 2023.

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Second, layoffs of a few thousand people may represent a significant fraction of a company’s workforce, but it’s still an extremely small fraction of the 154 million people employed in non-agricultural jobs as of October 2022. For example Snapchat (SNAP) announced that on August 31, 2022 it will lay off about 1,300 employees (about 20% of its workforce) — one of many companies including Netflix (NFLX) and Spotify (JOB), which also made headlines last summer and autumn due to layoffs. As of Q3 22 earnings (for the quarter ended September 30), SNAP headcount decreased by 740 sequentially, which is still slightly higher than the headcount for Q3 21 a year ago. As with many tech companies that have aggressively hired staff in recent years, a 20% workforce reduction would still be about twice what it was before the pandemic. Let’s look at the broader data set from this period – after the most recent BACK According to the report, layoffs in the United States have not necessarily been higher in recent months, although the headlines of layoffs started a few months ago. The reported layoff rate in September was just 0.9% of total employment, the same rate as in May-July (August’s layoff rate was actually slightly higher at 1.0%). See this report for a more detailed analysis on employment and BACK Data.

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Layoffs and hiring freezes can be part of a larger strategic plan to transform an underperforming company.

It’s also important to note that while layoffs are unfortunate for the employees involved and can be detrimental to company morale, they are not necessarily indicative of poor forward performance at the company level. Layoffs often occur when companies are already underperforming and are trying to cut spending to increase profits and free up cash. But layoffs alone will rarely boost profits. Businesses also need to make strategic changes to increase labor productivity efficiencies — including investing in technology, changing strategic goals, and adjusting customer and supplier relationships. Otherwise, downsizing could reduce sales as well as costs. In the case of many of these tech companies that are down over 20% to 70% course of the year, strategic reorganizations (including layoffs and hiring freezes) could be seen as a positive catalyst for investors waiting for the company to make tangible changes. However, it typically takes several quarters to fully realize efficiencies, so long-term benefits to individual company performance from layoffs and hiring freezes may not become apparent until 2023.

bottom line:

Despite several high-profile tech layoffs, the job market is still relatively strong and overall layoff rates are historically low so far. For many of the tech companies found in thematic indices, layoffs and hiring freezes could potentially be seen as a positive catalyst to turn around companies that have far underperformed the broader stock market course of the year Base.

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Underlying Index | Availability of associated product/direct indexing platform

healthcare
Index of Medical Breakthroughs by S-Network| ALPS Medical breakthroughs ETF (SBIO)
S-Network Healthcare Innovation Index| SmartTrust Healthcare Innovations Trust; Available on the C8 platform and the SMARTX platform

technology
O’Shares Global Internet Giants Index| ALPS O’Shares Global internet giants ETF (OGIG)
S-Network North American Disruptor Index| SmartTrust Technology Revolution Trust – Contains 30 shares of SNNADX

Natural resources
S-Network MicroSectors Gold Miners Index| MicroSectors Gold Miners leveraged 3x ETN (GDXU), MicroSectors Gold Miners -3x Inverse Leveraged ETN (GDXD)
S-Network Global Water Index| Invesco Global Water Portfolio – Contains 25 shares of JGI; Available on the C8 platform
VanEck Natural Resources Index| VanEck Natural Resources ETF (HAP)

Blockchain and crypto
Alerian Galaxy Global Blockchain Equity, Trusts & ETPs Index | Invesco Alerian Galaxy Blockchain Users and Decentralized Trading ETF (BLKC)
Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts & ETPs Index | Invesco Alerian Galaxy cryptoeconomics ETF (SATO)

Miscellaneous
S-Network Global E-Commerce Index| Trust S-Network e-commerce first ETF (ISHP)
S-Network Electric & Future Vehicle Ecosystem Index| Trust S-Network Future Vehicles & Technology first ETF (CARC), Electric and Future Vehicle and Technology Portfolio – Includes 25 shares of FUTURE
S-Network Streaming & Gaming Index Trust S-Network Streaming & Gaming ETF (BNG)
S Network Storage Index| make space ETF (UFO), make room UCITS ETF (YODA)
S Network Global Travel Index| ALPS Global Travel beneficiaries ETF (JRNY)
Alerian Disruptive Technology Real Estate Index| Trust Alerian Disruptive Technology Real Estate first ETF (DTRE)
VettaFi Natural Disaster Recovery and Mitigation Index| Procure disaster recovery strategy ETF (FEMA)
Alerian US NextGen Infrastructure Index| Trust Alerian US NextGen Infrastructure first ETF (RBLD)

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