New ETFs: Drones and Video Game Tech
06/24/2016 10:00 am EST
From cyber security to “big data”, PureFunds develops niche-focused exchange-traded funds; here we talk with Andrew Chanin, chief executive officer, to discuss the two newest innovative funds from his firm — one focused on drones and one on video gaming technologies.
Steve Halpern: Our special guest today is Andrew Chanin, CEO of PureFunds, which specializes in innovative and highly focused exchange traded funds. How are you doing today Andrew?
Andrew Chanin: Very well. I’m glad to be here.
Steve Halpern: Could you share some background about PureFunds and explain its focus on what you call in-demand industries and thematic ETFs?
Andrew Chanin: Absolutely. When I started PureFunds it wasn’t necessary to capture the ETF market and do what everyone else was already doing. It was to take advantage of what I saw as opportunities that weren’t being created for investors.
What I noticed what that there was certainly interest in specific themes that investors were looking to get exposure to, and prior to us bringing out ETFs for those specific themes, there were really only two options.
It was invest in a broad based index fund that gives you most likely very little exposure to that specific theme that you want to target, or invest in an individual company which can provide significant individual company risk, volatility, as well as just a constantly changing landscape.
And, to me, what we thought we could provide value to within the market was creating these innovative, thematic ETFs targeting these in-demand industries.
Steve Halpern: Now the last time we spoke you had just launched a Cyber Security Fund and you’ve now just launched your first Drone ETF called the Drone Economy Strategy ETF (IFLY). Could you tell us about this fund and highlight some of the markets where commercial drones are being increasingly used?
Andrew Chanin: Absolutely. So this was a really interesting project for us. It marks one of the first times that two ETF companies had actually worked together to bring out an ETF.
Our partners at Reality Shares have been approached by several people with interest in investing in the drone industry, which had previously been feeling very difficult to do.
So they sat down and did a tremendous amount of research, and developed what they called the Proprietary Drone Score to help classify companies as Drone companies as well as signed their actual footprint in the space.
This is an industry that’s seeing a lot of change from both the regulatory side which we’re seeing absolutely picking up in the US, as well as the technological breakthroughs that we’re seeing.
Many industries initially drones were very popular in the military aerospace defense area but now we’re seeing as the technologies develop, as batter life lasts longer, more precision. Drones are able to carry heavier payload.
We’re starting to see it start to spread into various new industries like you said so in the film and movie industry they’re using drones to capture new angles. We’re seeing it in search and rescue.
We’re seeing it in engineering as opposed to having to shut down a bridge for several days or shut down lanes, they’re able to actually inspect whether these infrastructure projects need repair, so places where it’s been difficult for humans to go to access, that’s just one way that drones are making business more seamless.
Steve Halpern: You also had pointed out that they’re involved in the agriculture sector as well.
Andrew Chanin: Certainly. We’re seeing it to help analyze whether certain crops need more moisture, whether to fumigate, and we’re seeing them even being used to combat Zika virus in South America.
The applications are only as limited as it seems our imagination at this point, and as this technology develops we’ll see it continue to spread into new industries providing new efficiencies and benefits.
Steve Halpern: Now as an ETF, the design here is to eliminate stocks specific risk but I was wondering if you could highlight some of the favored or largest holdings in the ETF for those who would like to have a better understanding of what type of companies make up IFLY?
Andrew Chanin: I can’t go around picking favorites. Our job is to try to capture the essence of the industry by providing the companies that are involved in that space, but certainly.
Two of the sure play companies in this fund are AeroVironment (AVAV), an American company, and Parrot (PARRO), a French company, as well as maybe a more familiar one that’s not a pure play company, Boeing (BA), so we could certainly talk about those.
AeroVironment is the company that is focused on drone technology and they’re starting to get contracts from the military, specifically the Navy as well, and just are one of the types of technology that they are helping create are drones that could be launched from a submarine.
Steve Halpern: Now, you’ve been pretty busy at PureFunds lately because you’ve also released another first to the market, which is the PureFunds Video Game Technology ETF (GAMR). What’s the story behind this one?
Andrew Chanin: Sure. It’s a really interesting time. I’m actually in LA as we speak at the East Coast Gaming Conference, one of the biggest video game conferences in the world, and it’s something that you have to be here to truly understand the significance of this industry.
Few people realize; you mentioned our PureFunds Cyber Security Fund (HACK), more money was spent globally last year on video game technology than on Cyber Security around the world.
Few people realize how massive of an industry this is. It is no longer something where it’s just used for entertainment purposes.
This is an industry with some incredible technology that is now starting to see it’s applications expand into things like education and healthcare, fitness, training, simulation.
The impression of what people have with video games or video game technology is being erased and it’s something where we’re seeing this technology starting to have significant benefits throughout other industries.
This is similar to the way that we’re seeing technology with drones starting to benefit other industries. We’re seeing something very similar in the gaming environment.
Steve Halpern: Now again, you don’t pick favorites within a sector, but could you highlight some of the representative holdings that you’ve got in the Video Game Technology ETF?
Andrew Chanin: Absolutely. The current largest holding is a company called Activision Blizzard (ATVI). They have many, many popular video game franchises.
They’ve made many acquisitions in the space as well expanding their presence, and fairly recently had acquired a company Cane Digital to expand their mobile presence.
It’s also important to note that all of our ETFs are global equity ETFs and they are getting exposure to these global themes by investing in companies around the world.
And while not one of our largest holdings, but an interesting company, Tencent Holdings (Hong Kong: 0700) is a Chinese company and they have a tremendous presence in the space.
They are constantly looking at acquisitions, they are huge in the mobile gaming space, and are even doing private investments into other companies.
These moves are getting them into other areas within the industry, like augmented reality and virtual reality and things like this, which have the ability to kind of transcend entertainment and potentially have a lasting impact on other industries.
Steve Halpern: Finally, I know you can’t be too specific about any developments that may be in the works, but I was wondering if you could just perhaps speculate on some other markets or sectors that you might be looking at in the long-term as future PureFunds ETFs?
Andrew Chanin: Certainly. As you can kind of notice from the six funds that we have on the market, we’ve really been looking for these kind of emerging growth opportunities in various industries and areas where we’re seeing significant disruption.
And we’re looking at areas like traditional sectors and trying to find those intriguing growth stories within those sectors, so someone that wants to currently invest in the Fin-Tech revolution that we’re seeing, we have a Mobile Payment Fund.
I think we’re going to continue to look to do other things like this where we find that highly innovative area within these broad based sectors.
So I would certainly encourage you and your audience to continuously come to our website to see what we’re up to and we’re constantly looking for new ideas as well, and investigating them.
Steve Halpern: Again, our guest is Andrew Chanin of PureFunds. It’s always fascinating to talk to you. Thank you so much for your time today.
By Andrew Chanin, CEO of PureFunds