ETF Expert Corner
PureFunds CEO Andrew Chanin Spotlights FinTech ETF, HealthTech ETF
January 17th, 2017 by ETF Store Staff
You can listen to our interview with Andrew Chanin by using the above media player or enjoy a full transcription of the interview below.
Nate Geraci: We're actually spotlighting two ETFs this week: the PureFunds Solactive FinTech ETF, ticker symbol FINQ, and the PureFunds ETFx HealthTech ETF, ticker symbol IMED. Joining us via phone from New York to discuss these ETFs is the CEO of PureFunds, Andrew Chanin. Andrew, as always, great to have you on the program.
Andrew Chanin: Thanks for having me.
Nate Geraci: Andrew, let's start with the FinTech ETF. For our listeners, if you haven't heard this term before, Fin Tech stands for Financial Technology. Andrew, first, what are some of the technologies we're talking about in this space? Give us an idea here.
Andrew Chanin: Some of the more familiar Fin Tech types of companies and strategies that you'll see out there are payment solutions, insurance companies are using Fin Tech, deposits and lending, capital raising, investment management, marketing provisioning, and banking administration and accounting services.
Nate Geraci: So the PureFunds Solactive FinTech ETF obviously offers exposure to companies that are delivering these types of different technologies. Tell us more about how this ETF is designed and what the end investment goal is.
Andrew Chanin: Those key kind of areas that this fund focuses on has actually been taken into a deeper dive where we look at companies that are actually automating processes, enhancing the distribution of products and services, or the creation of new products and services that didn't necessarily previously exist. When you look at that, we're really seeing right now there's this massive convergence between the financial industry, specifically the financial services industry, and technology. Never like any time seen before. What that's allowing companies to do is it's allowing financial companies to be more efficient, to be able to get information faster and cheaper. It's allowing even small businesses to do their accounting and other types of services that could take longer and that they would need more individuals, it's really allowing companies to streamline, but there's so many different areas where technology is now affecting the financial service industry. This fund gives investors exposure to many of these companies from around the world. The minimum size company in this fund is 200 million dollar market cap. You have companies on the smaller side that are publicly traded, and even the much larger publicly traded Fin Tech companies.
Nate Geraci: Now, how many holdings are there overall in this ETF, and can you give us an idea as to some of the specific stocks that are held?
Andrew Chanin: This fund currently has 31 companies. This is rebalanced quarterly. Some of the companies that people may be familiar with that we hold are PayPal, DST Systems, Fair Isaac Corps, known kind of for FICO scores, Equifax, Experian. There's a large amount of companies. Some of these are companies that are acting completely behind the scenes, and maybe individuals might not know them as well if they're not in the financial industry because there's no need for them to actually use those products or services. Some of them are ones that individuals are using as well for tax support, or even when you're looking for a new house or apartment, with a company like Zillow Group.
Nate Geraci: I'm curious, can you tell us more about how the stocks in this ETF are initially identified? In other words, what qualifies as a Fin Tech company for the purposes of this ETF?
Andrew Chanin: So first and foremost, there are these three areas that these companies must be doing. These are typically technology companies with high focus on the financial service industry, if not a complete focus on providing products or services for the financial service industry. These are, like I said, the companies that are automating processes, enhancing distribution of products and services, or the creation of new products and services that did not previously exist. For example, there are many publicly traded exchanges out there. They're all using very similar technologies for the most part. Although some people may consider a financial exchange a Fin Tech company, for us, it didn't meet those criteria. Something like a stock exchange, an options exchange, they're very similar to what the other exchanges are out there, so they're not actually providing something new. On the other hand, there's companies like PayPal, or like Zillow, which are completely changing the way that individuals or companies are using these new products or services. What we do is Solactive, the company that builds the index, will look through the global pool of publicly traded companies, and looks for ones that are focused on technology in the financial space. Right now, there were 31 companies that qualified to meet that definition, and that pool is constantly looked at, added to, reduced from, as new market entrants come and leave the market space.
Nate Geraci: You said global pool, so just to be clear, this ETF does have some international exposure as well, is that correct?
Andrew Chanin: Exactly. As do all of our ETFs.
Nate Geraci: Now, also, this ETF does have a small cap tilt to it. Is that simply the nature of the types of companies involved in financial technology?
Andrew Chanin: I think part of the reason that you'll see that is that it is an equal weighted fund. One of the reasons behind that was we realized that there are many different companies out there, yet some of the most exciting technologies don't necessarily need to come from the largest Fin Tech providers. Some of these exciting technologies come from small players, and just because it's a small company, doesn't necessarily mean in our mind that investors may not want that exposure. This fund actually does an equal weighting methodology so that every time the fund re-balances, you're having a similar exposure to large and small companies. That being said, this industry is fairly nascent in what it's been able to do and accomplish so far, so there are companies that are in different stages of the growth cycle. To get a full kind of complete picture of the publicly traded space that is specializing in the Fin Tech industry, that's why you see that you'll have equal weightings to both large and small companies, so you have exposure to each of these companies as they expand and contract.
Nate Geraci: All right, lastly before we move on here, just to summarize for our listeners, what's the overall investment thesis for this space? Why invest in Fin Tech?
Andrew Chanin: I think a lot of investors out there have exposure to the financial industry. There's an entire industry out there whose sole goal is to disrupt the status quo of financial service industry. These are the Fin Tech companies. Many people have exposure to these kind of traditional, old guard financial companies, financial service companies, yet there's all these new companies that are coming out there that are trying to now take on a larger position. Now, some of these can actually grow alongside of traditional companies. Many financial institutions we're seeing are reducing staff and laying off people and replacing that with actual technology. Sometimes, people may say, "Okay, well I have financial exposure." Well, what happens if some of these companies are facing hard times, they don't have enough money to spend? Sometimes they're actually implementing Fin Tech in order to make up for that difference and become more efficient. It gives investors a different kind of exposure than they're getting if they're investing in traditional, broad based financial funds. It gives them some exposure to these emerging growth opportunity companies.
Nate Geraci: Again, we're visiting with Andrew Chanin, CEO of PureFunds. All right, Andrew, let's now look at the PureFunds ETFx HealthTech ETF. Again, the ticker symbol on that is IMED. This seeks to invest in companies applying technology across the healthcare sector. Walk us through this ETF. What types of companies are held? How is the ETF constructed? What's the investment case here?
Andrew Chanin: If you look at the entire space, or what healthcare ETFs are out there, you'll notice that there are about 50 or so different healthcare ETFs currently in the market. We didn't want to create just another healthcare ETF. We wanted to create an ETF that is providing new exposure to what we think are one of the very exciting areas within the healthcare space. These are the Health Tech, Med Tech companies. To us, what a Health Tech company is is a company that's a medical appliance company, a medical instruments company, or a healthcare informatics company. Healthcare informatics, in particular, is one of these areas that hasn't really been addressed by many companies in the ETF space. When this index was developed by ETFx, they were really looking at focusing on these three areas, and not giving exposure to the pharma companies and the vaccine companies and the hospitals. This is another area where we realized that there's a lot of interest and focus in investing in the broader sector, but very little ETF focus on these actual innovative areas within that broader sector. This is a fund that was developed to give investors new exposures to some of the, in our mind, some of the most exciting technologies that are being developed in the world right now.
Nate Geraci: Can you maybe give us an example or two of those technologies, or maybe a company that's held within this ETF?
Andrew Chanin: Tele-medicine is an area that we're seeing many new adapters. It's allowing doctors to see more patients, it's allowing ease for patients to get treatment. This is all possible because of this convergence of technology and the healthcare industry. Teladoc is a company that we have in this fund that has a focus on tele-medicine. There are so many other technologies. There's nano-technology in medicine. There's 3D printed implants for healthcare, 3D printed body parts even. We're seeing mobile health, we're seeing cyborgization. We're seeing so many different areas that we think that maybe several years ago, a decade ago seemed like science fiction, but there are so many companies that are realizing if they can actually develop these specific types of services, and treatments, and technologies, that there could be immense implications on the overall healthcare industry, as well as the quality of life around the world.
Nate Geraci: Now, similar to the FinTech ETF, is there also a smaller cap tilt to the HealthTech ETF? Also, does this contain global stocks?
Andrew Chanin: This does contain global stocks, and is actually, for a healthcare ETF, has a very large exposure to global, more international companies, where many of the healthcare ETFs out there today have much more of a domestic focus. This is a way to get exposure to, like you said, companies small and large, but have an extremely high percentage of their revenues coming from these specific three Health Tech categories. It has an equal weight actually to the companies within each of these category exposures.
Conor Kelly: Andrew, this is Conor Kelly. Quick question. How would this ETF differ from a large bio tech ETF like the iShares Bio Tech IBB?
Andrew Chanin: That was one of the things that we thought about when building this. This actually came from my desire to actually invest in the Health Tech space, and looking at the medical device products that are out there, they actually had a very significant exposure to bio tech and pharma - which to me, as someone that is trying to invest in that space, is looking maybe for less exposure to that area. The larger bio tech funds out there have a significant exposure to the area of pharma and vaccines. This fund has very little, if any, exposure to those areas. It's a completely different type of company that you're investing in when you're investing in this area, while also getting a high global exposure, so you're not just focused strictly on the technologies coming out of the US.
Nate Geraci: Andrew, same question I asked you on the FinTech ETF, just to summarize for our listeners, what's the overall investment thesis for this space? Why invest in Health Tech?
Andrew Chanin: This is a high innovation area, and one that very few investors have exposure to if they're investing in broad based funds. Or, if you're picking individual companies as well. When you're dealing with these different types of technologies, not every single technology is 100% going to get approved or be the winning solution for that specific goal that it has. When investing in some of these emerging growth opportunities, it may make sense to have diversification. With a fund such as IMED, you're getting exposure to roughly 60 publicly traded Health Tech companies from around the world, and by having that diversification and getting exposure to some of these really exciting technologies, you're being able to minimize individual company risk.
Nate Geraci: Again, we're visiting with Andrew Chanin, CEO of PureFunds. Andrew, while we have you on the line today, I did want to switch gears a bit and ask you about another PureFunds ETF, the PureFunds ISE Junior Silver ETF, ticker symbol SILJ. This was actually the top performing unleveraged ETF of 2016 with a gain of about a 140%. We spotlighted this ETF on the program last week. Can you just give us a quick overview here? What were some of the key drivers of performance last year? Any thoughts on the junior silver miners moving forward?
Andrew Chanin: This was one of the first ETFs that I really wanted to help launch. It was because of these properties of junior silver companies. Last year, we happened to see a decent rally for silver prices, which had a much more beneficial cause to the ... or effect to the junior silver mining companies. Many of these companies were in a position, if you remember, at the end of 2015 where they needed financing. It was difficult to get it because they were losing money at the given prices of silver if they were actually mining for that silver. As the market changed and silver prices started moving up, it became less risky in the eyes of companies trying to finance these, and it really helped out the entire space. These companies have traded a significantly high beta to precious metals prices. When you're in a strong bull market in precious metals, typically the mining companies that are mining are exploring for those companies can see a pretty good environment for themselves. It really is dependent upon how precious metals move, but in a bull market, we've noticed that SILJ has been able to trade at a high beta to the metals themselves.
Nate Geraci: You know in the past, I think we've referred to the miners as a levered play on the price of silver, or if you're looking at gold miners, a levered play on the price of gold. Would you agree with that? Is that a good way for investors to think about them?
Andrew Chanin: Without having to use derivatives. I think that's why a lot of people use the junior miners as a way to invest in this space. Given that junior minors do trade at higher volatility than their counterparts, the senior and mid-tier producers, to us this was another reason that it made sense to create a fund where you got exposure to many junior silver companies from around the world that are mining in different jurisdictions, on different types of properties, that hopefully you could reduce that individual company risk in what can be a volatile industry.
Nate Geraci: Andrew, we won't ask you to get out your crystal ball and predict the future price of silver. We don't do that on this program. I'm just curious, what could be some catalysts to drive the price of silver moving forward? What could be some positive things for silver and silver miners?
Andrew Chanin: One of the big things that we saw last year, which certainly could persist, was the large scale of negative interest rates that we saw around the world. There were at one point, I believe, well over 10 trillion dollars’ worth of negative yielding interest rate products. When you have something like a precious metal, which has many properties to it, one of the things that it doesn't have is a yield. Well, in a negative yielding world, a zero yielding asset doesn't look too bad. That was, I think, a very large driver. People saying, "If I leave my money in a bank or in fixed income, I may actually have less money at the end of the year, and this is still ... You know, an ounce of silver's still an ounce of silver." I think that was a big benefit to the precious metals price. Obviously for the junior silver mining companies, a rally in silver prices would be very beneficial for them, but another area as well is we're seeing bans on cash in India. We're seeing more countries moving towards kind of mobile societies. I think one thing that that does is it makes investors, and just individuals, have to look for other types of asset classes to get exposure to. In the event that few people have exposure to precious metals, and look to start adding allocations, that could be an increase in investment demand. If we saw an increase in investment demand for silver, an increase in actual industrial demand for silver, those each could be catalysts for the price of the metals, as well as their corresponding miners and explorers in the future.
Nate Geraci: Andrew, with that we'll have to leave it there. First of all, congratulations on the success of the silver ETF. That's fantastic. Are you going to be down at the Inside ETFs Conference next week?
Andrew Chanin: We absolutely will. If you or any of your loyal listeners are around as well, we'd love to speak with them at our booth.
Nate Geraci: Absolutely. We'll definitely have to connect. As always, we appreciate you joining us on the program, and look forward to talking to you. Thank you.
Andrew Chanin: It was my pleasure. Thanks for the opportunity.
Nate Geraci: That was Andrew Chanin, CEO of PureFunds. You can learn all about the PureFunds ETF line up by visiting PureFunds.com.