PureFunds: Investing in Tech Niches

08/10/2015 10:00 am EST

Focus: ETFs

PureFunds has launched a series of innovative exchange-traded funds focused on niche sectors in technology; cyber security, mobile payments, and big data. Here, CEO Andrew Chanin discusses these ETFs, their top holdings, and the role that each can play in an investor's tech portfolio.

Steven Halpern: Our guest today is Andrew Chanin, CEO of PureFunds, a leading innovator in the ETF space. How are you doing today, Andrew?

Andrew Chanin: Great and glad to be here. Thanks for having me.

Steven Halpern: When we last spoke earlier this year, we discussed the PureFunds ISE Cyber Security ETF with the fantastic symbol (HACK). Before we look at your two newest funds, would you update our listeners on the cyber security fund, which is up over 15% year-to-date?

Andrew Chanin: Certainly. We’ve been extremely pleased with the early success that the fund has had as far as growing in assets and inflows—as well as the awareness of this—and it has been such an amazing experience for our company.

We’ve been a company since 2010 with funds on the market since 2012 and this was the first runaway success that—product wise—our company has had and it’s allowed us to take on so many different opportunities.

The cyber security space is one that we believe is still in the early innings as far as industry growth awareness and proliferation of technologies, and it’s one that’s becoming seemingly more important by the day.

And I think that the more cyber attacks, and cost of damages that arise, the more focus that this industry will have to institutional investors as well as retail investors.

Steven Halpern: And just so our listeners understand, by investing in an ETF that is devoted to a broad swath of cyber security stocks, they’re able to get diversification within the sector as opposed to taking on the inherent risks of a single company.

Andrew Chanin: Exactly. And what we’ve kind of noticed was that there was a demand by investors for exposure to cyber security, and before launching this, your options were to invest in a broad-based technology fund that gives minimum exposure to the specific area or try to pick individual stocks.

And I think a lot of people were nervous due to the volatility of the general industry and found this as a way to get that diversification and minimization of volatility while getting exposure to some of the very interesting areas within cyber security.

And, as you and your audience probably know, most companies in the cyber security space specialize in one or two areas within cyber security, but it’s such a broad and evolving industry that it makes sense to many to invest in the broader industry and the overall theme as opposed to trying to pick an individual company, which can change so quickly day to day.

Steven Halpern: So, turning to your newest niche tech funds, could you tell our listeners about the PureFunds ISE Mobile Payment ETF with the symbol (IPAY).

Andrew Chanin: Absolutely. It would be my pleasure, so with the success that we’ve noticed in HACK, we noticed that there was strong investor demand for specific technology plays, ones that may have a brief overlap by investing in broad-based themes.

But we were looking for those specific growth areas that investors were interested in within the technology space, and had subsequently decided to break those areas down, and one of these areas was the payment and transaction industry.

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Some people may have exposure through larger financial funds to some of the larger, more traditional based companies in this industry, but we wanted to provide something new, something different, and a new exposure.

What we noticed is that the mobile payment—and by mobile, we include mobile payments, electronic, and digital in that mobile title—we noticed that the mobile payment market was one that was taking a significantly larger share year-over-year from the general overall payments and transaction industry.

To be able to provide a fund that gives exposure to these very interesting areas within this broader theme was what we thought investors would want.

And within this fund, we have companies that are on the card network side, the processors, the solution companies, and the infrastructure software, and we think that ISE breaking that down offers very interesting exposure to the various players within the industry.

Steven Halpern: So, could you walk us through some of the top holdings in the fund so people could understand what types of companies make up mobile payments.

Andrew Chanin: Sure. So, on the...I think some of the ones that people may be more familiar with are some of the larger card networks. Within those, we include the Visa (V), MasterCard (MA), American Express (AXP), and Discover Financial (DFS) as well. And those kind of companies, I think, are very familiar...that people are very familiar with.

They are huge players on the electronic side of the categorization of funds and these companies, some may say, "Okay, they’ve been around for a while," but a lot of these companies are going to be on the forefront of this mobile revolution and these companies aren’t going to sit idly by and watch some of the smaller innovators in the space dig into their market share, so they’re definitely a very important part of the fund.

Then you also have companies like PayPal (PYPL), which recently became its own singular, publicly traded entity.  And we’re seeing, also, some new IPOs potentially coming down the pipeline, which could also bring a lot of attention to the space.

In addition to those companies that more people are familiar with, we also have companies like VeriFone (PAY), which, if you’re taking a taxi in New York City and you’re swiping your card, there’s a good chance that in the back of that cab there’s a VeriFone Systems' device.

That would be kind of on the infrastructure and software side, as well as the processors like Evertec (EVTC) and Qiwi (QIWI).

And so, we think that by providing some of these larger known companies—as well as a huge mix of companies that individuals may not be as familiar with and the intelligent design of the index to incorporate for new trends within this mobile electronic and digital space—provides investors with a slice of a little more interesting parts and segments of this overall financial tech-hybrid kind of a fund.

Steven Halpern: Now, you’ve also introduced the PureFunds ISE Big Data ETF with the symbol (BDAT). What constitutes big data, and also, could you walk us through some of the top holdings in this fund.

Andrew Chanin: Happy to. So, big data to most is kind of a concept that includes either the three Vs or the six Vs. We’ll stick with the three Vs, velocity, volume, and variety. And big data refers to the management of these large sets of data.

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Volume being the sheer quantity of data, variety being the various different types of data that’s being originated at all times, whether its pictures, texts, audio, as well as the velocity, which is the speed of all this data being collected; so with our fund, it’s broken down into four different kinds of groups. We have data origination, data aggregation, applications, and solutions.

We think that this is a very interesting way for our index provider to have broken down the space, because you have companies such as Google (GOOGL) or Facebook (FB) that are receiving constant inputs of more and more data and they’re doing things extremely creative to benefit from this data.

Google is able to help advertisers better target their customers through ad words and people are constantly searching for different terms on Google and some of the developments from that have been their ability to track the spread of diseases, just to name, kind of, one example.

Facebook has been able to develop incredible facial recognition technology from all the images that they have across the Facebook network as well as Instagram.

You kind of have companies like those, like Twitter (TWTR) or LinkedIn (LNKD) that have various and different types of data that they’re holding onto and what they’re trying to do is to help customers better target their ideal clients on the marketing front as well as using this data to create new products and things that haven’t even been considered yet.

And by sitting on these massive stockpiles of data, the possibilities are extremely intriguing because they don’t necessarily know yet everything that they’ll be capable of, but in the past, we’ve seen—like we said—the spread of disease and things like that, as well as dissecting the human gene—and determining exciting things like that—and pre-crime prevention and more targeted advertising strategies.

So, these companies are helping businesses as well better allocate their resources and make better decisions. And then we also have—on the application side—we have companies like Teradata (TDC), like Hortonworks (HDP), like Workiva (WK), companies that some people may know a little bit about.

But once you get into the other holdings of the fund, we start to have names that maybe people aren’t as familiar with and by being able to, kind of, grasp this greater concept of big data and spending that companies will be doing for getting better analytics to make better decisions, seems to be a trend that is only increasing with time.

Steven Halpern: Now, I don’t know if you could share this information, but I have to ask, are there any other niche trends in technology that PureFunds is considering looking out at a future ETF.

Andrew Chanin: Yeah, we’re always looking and vetting new ideas and concepts—and are always trying to work on those—and we look forward to having many more in the pipeline.

At the time, we have nothing in registration, but we’re always looking for new ideas that we believe will resonate with the market and fulfill that demand that investors ultimately have.

Steve Halpern: Again, our guest is Andrew Chanin, CEO of PureFunds. Thank you so much for taking the time today.

Andrew Chanin: Thank you for having me and have a great day.

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