7 PureFunds Technology ETFs for Tech Investors
Whenever we start to look at investing in a technology like robotics, for example, we inevitably start looking for that one robotics stock that’s going to be “the next Microsoft”. That’s a bad approach and akin to gambling, because how can you possibly know which stock will ultimately outperform the others? While it’s possible that all stocks in one theme perform equally well, our last article on robot stock iRobot shows that some stocks can underperform the broader market in which case you took on a whole lot of additional risk for nothing. This is why you should always look to buy a group of stocks for any particular theme in order to enjoy the benefits of diversification. When we come across exciting technology themes like robotics, we try to find technology ETFs like robotics ETF ROBO that give us exposure to a technology with the benefits of diversification.
While this sounds good on paper, the problem is that with emerging technologies, they are… well, emerging which means that most of the opportunities will be in privately held companies and that there will not be a whole lot of pure-play stocks. This means that ETF providers or index builders will try to stretch their definition of a theme so that they can find enough stocks to fill their ETF and consequently charge you some fees. You’re not going to pay 75 basis points in fees for an ETF that holds 5 stocks, are you? You want your ETF provider do something to earn those fees.
We recently came across an interesting technology ETF provider called PureFunds which covers a number of emerging technology themes, some of which we’ve talked about before like Big Data, Cyber Security, and Drones. Here’s a look at all 8 of the ETFs PureFunds offers:
If we scratch off the junior silver mining ETF, we can see that the remaining are all technology ETFs. Now we want to take a closer look at some other metrics like fees and assets under management (AUM). AUM represents the amount of money that investors (retail or institutional) have decided to invest in the ETF. We want to see high AUM numbers because then that means the investment vehicle will be around for a while. Here’s a quip from an Investopedia article titled “Why So Many ETFs End Up Shutting Down“:
Todd Rosenbluth, director of ETF and mutual fund research at CFRA, told FAmag.com that ETFs usually close when their assets under management (AUM) drop below $50 million. Funds with small amounts of AUM must charge higher fees in order to stay in business, which can further erode their bottom lines as customers leave for cheaper alternatives
PureFunds is a small ETF provider, and they are probably flexible enough to support any AUM level. They just have to have a certain number of holders on record in order to stay listed on certain exchanges. Here’s a look at AUM, inception dates, fees, and # of stocks for each of the 8 PureFunds ETFs:
|PureFunds ISE Cyber Security ETF||HACK||$785,935,080||35||Nov-14||0.75%|
|PureFunds ISE Junior Silver||SILJ||$56,675,847||24||Nov-12||0.69%|
|PureFunds ISE Mobile Payments ETF||IPAY||$27,919,359||31||Jul-15||0.75%|
|PureFunds Video Game Tech ETF||GAMR||$7,810,736||36||Mar-16||0.75%|
|PureFunds Drone Economy Strategy ETF||IFLY||$7,765,388||44||Mar-16||0.75%|
|PureFunds ISE Big Data ETF||BIGD||$2,396,335||41||Jul-15||0.75%|
|PureFunds Solactive FinTech ETF||FINQ||$2,372,460||31||Aug-16||0.68%|
|PureFunds ETFx HealthTech ETF||IMED||$2,353,785||60||Aug-16||0.75%|
We can see that their most popular ETF by far is HACK with an AUM of almost $800 million. HACK is a basket of 35 stocks relating to cybersecurity and has won PureFunds all kinds of accolades. Prior to the opening of the HACK ETF back in 2014, PureFunds had a less popular ETF called SILJ which is a collection of 24 junior mining silver companies. PureFunds generates 94% of their fees from these two ETFs alone. In July of 2015, they opened BIGD (a big data ETF) and IPAY (a mobile payments ETF). Mobile payments were much more popular with investors as IPAY currently has $23 million in AUM while the big data ETF, BIGD, has just $2.3 million in AUM. Why is one ETF more popular than the others?
While popularity can be attributed to marketing and the overall appetite of investors for whatever theme happens to be “hot” at the moment, a large part of what comes into play is the index that the ETF is based on. It’s not only PureFunds that does marketing. The index providers are often well known and people may buy the ETF just because they use that index provider for other needs. Is it just a coincidence that ISE indexes drive the top 3 PureFunds ETFs by AUM? Here’s a look at the index providers for each of these 8 ETFs:
|NYSEARCA:HACK||ISE||Cyber Security Index|
|NYSEARCA:SILJ||ISE||Junior Silver (Small Cap Miners/Explorers) Index|
|NYSEARCA:IPAY||ISE||Mobile Payments Index|
|NYSEARCA:GAMR||ISE||EEFund Video Game Tech Index|
|NYSEARCA:IFLY||ISE||Reality Shares Drone Index|
|NYSEARCA:BIGD||ISE||Big Data Index|
|NASDAQ:IMED||Solactive||ETFx HealthTech TR Index|
Before making a decision to buy any of these ETFs, you would want to take a good look at the index to see what exactly it is you are buying. Don’t just look at the basket of stocks in the ETF. Take a look at what methodology was used to determine which stocks go into that ETF. We made it easy for you and added links in the above table that go right to the underlying index methodologies made available by the index providers.
These days “smart beta” concepts are expected to be transparent, though ETFs are going to keep getting more and more creative in the future. We recently covered the BUZZ Social Media Insights ETF (BUZ) which uses artificial intelligence (AI) and “big data” to determine which stocks to hold. Who knows that future ETFs will debut from PureFunds but in a coming article, we’re going to take a closer look at the PureFunds Drone Economy Strategy ETF to see what that one is all about.
Here at Nanalyze, we complement our tech investments with a portfolio of 30 dividend growth stocks that pay us increasing income every year. Learn how to build your own dividend growth stock portfolio in our report on Quantigence - A Dividend Growth Investing Strategy - freely available to Nanalyze Premium subscribers.