ETF Expert Corner

Bryce Tillery Spotlights The Wear ETF, Discusses Wearable Tech Industry

August 29th, 2017 by ETF Store Staff

Bryce Tillery, CEO of Eve Capital, spotlights The WEAR ETF (WEAR) and discusses the intriguing potential of the wearable technology space.



Transcript

You can listen to our interview with Bryce Tillery by using the above media player or enjoy a full transcription of the interview below.

Nate Geraci: The ETF we're spotlighting this week is The WEAR ETF, ticker symbol WEAR. This is the first ETF to cover the wearable technology space. What's interesting is that I think we're all certainly familiar with products like Fitbit and the Apple Watch and GoPros, and all of these companies are included in this ETF, but WEAR also covers areas that may not be so familiar. For example, in healthcare, or even the chip makers behind these devices. There's more to wearable technology than just fitness and GPS products. Joining us via phone from Dallas to discuss this ETF is Bryce Tillery, CEO of Eve Capital - they're the sponsor of The WEAR ETF. Bryce, great to have you on the program today.

Bryce Tillery: Thank you so much. It's great to be on, as well, and congratulations on all your success so far. The ETF Store seems to be doing very well.

Nate Geraci: Thank you, Bryce. We appreciate that. First, I'm curious. Where did the idea for this ETF come from?

Bryce Tillery: It's funny. This idea actually came from several investors - also the index provider. It's one of those things where most people say ideas don't happen in a vacuum, and I think a few people had a similar idea at the same time. There was an idea about breaking it down just into the medical wearable space, but we thought an overall larger thematic play would be better. The idea generated just kind of out of a need to get access to this market. We saw it as part of the internet of things, but it’s a niche of that market, but it's really where all the growth and revenue is going to come from for the next ten years, so it's about getting clients access to that growth.

Nate Geraci: Bryce, can you tell us more about the wearable technology industry as a whole? As I alluded to earlier, I think most people are familiar with the Fitbits and the Apple Watches, but what are some of the other technologies involved here, and what does the overall growth outlook for this industry look like?

Bryce Tillery: We spent the better of the past year trying to convince people that this is not just the Fitbit stocks of the world, especially after they've been down about 80% from their IPO. It's better to think of wearable technology not as a tech play, but more of a directional play on the growth of the marketplace. Obviously, there is the fitness aspect to it, but the largest revenue in wearables right now is coming from the healthcare space. This is where a majority of the patents are coming out. When we look at current revenue and growth and what's driving wearable demand, it is on the healthcare side. Also encompassing that, though, is industrial and military use, as well. If you can think about soldiers having augmented reality glasses on, hearing enhancements, things like that that can help give them an edge in the battlefield. Then there's also the entertainment space. There's the sports area. It really is encompassing kind of all of our lives, which is why we like the play. Given in 2000, 2003 and '04, you could really just buy the Nasdaq, and you were buying growth stocks. You were buying tech stocks. You were buying that area of the segment that people thought was going to be strong in the economy for the next 10, 15, 20 years, and wearables has really taken that over, and we feel there's kind of the same growth play there.

Nate Geraci: Our guest today is Bryce Tillery, CEO of Eve Capital. They're the sponsor of the WEAR ETF, ticker symbol WEAR. Bryce, before we get to the ETF, I'm curious - what's your background and how did you get involved in ETFs?

Bryce Tillery: My background, I started out in ETFs in 2004 at First Trust Portfolios. It's a fantastic firm. They're one of the larger ETF players out there right now, but I was helping them create Exchange-Traded Funds back in '05 and '06. From there, I moved on to Alerian to help launch AMLP in 2010 and was with Oppenheimer for a couple of years. So my background really is in the ETF world. Structurally, I think everyone listens to your show because they know they are generally better investments tax-wise and structurally than a lot of the other options out there. Our firm continues to make strides in that space, so we're excited. We think we still have a long way to go within the ETF space from a global perspective. The rise of active ETFs being more, from a growth perspective, has done very well this year, so we actually see some major strides there, so we're excited about it.

Nate Geraci: Let's talk specifically about The WEAR ETF. This holds approximately 30 stocks of companies involved in manufacturing and selling wearable technology, along with the component manufacturers. Tell us more about how these companies are selected. Do they have to generate a certain amount of revenue from wearable tech or just be involved in the space? What's the criteria to be included in this ETF?

Bryce Tillery: They do. The Wearable ETF - and actually a slight correction, it's about 58 companies currently – as far as the criteria for the index, the Wearable ETF tracks the EQM Wearable Technology Index. Really, it's an equally weighted index, but we do give a multiplier weight, so a little heavier weight, to the core wearable firms. If you think about it as core and non-core, while Google does make wearable devices, they had Google Glass, they have Daydream on the VR side. Apple, for example, makes the Apple Launch, but they don't have a majority of their revenue as derived from these products yet, so they'll have a lower weight in our index versus companies like Fitbit component manufacturers who make a lot of the sensors and things like that strictly for wearable tech. Some other firms, Nokia for example, has quite a few patents in the wearable tech space. Those will receive a higher weight within the index.

Nate Geraci: What about rebalancing holdings? How often can the ETF change the underlying stocks?

Bryce Tillery: As far as rebalancing goes, we do rebalance on a quarterly basis. However, the reconstitution takes place once a year, so a portfolio should be a little static throughout the year. But EQM does kind of look at the entire world of investments out there from a stock, from a publicly traded standpoint, and really try to isolate which companies are truly in this space. As you can imagine from what we've discussed so far, defining wearables can be a bit tricky, even trying to find data on it. IDC has their own projections. Market-to-markets has their own projections on what they define as a wearable tech and how large that segment's going to be, so it's really better to talk about them from an industry perspective.

Nate Geraci: To be clear, this is a global ETF - is that correct?

Bryce Tillery: It is. It's about 27% as ex-US currently. There is really no limit, though, as far as criteria on, "Oh, can it be 50% US, 50% non-US. It just happens to be a lot of the retailers and users of wearable tech reside in the United States.

Nate Geraci: Bryce, we talked earlier about some of the different technologies in this space, but can you give us another example or two of a wearable technology included in this ETF that perhaps our listeners may not be familiar with?

Bryce Tillery: Sure. If you can think about, I mentioned healthcare. A very simple wearable tech would be like Intarcia. They make an insulin pump that fits under the skin that can wirelessly link to your phone and things like that. Essentially, it delivers insulin as the body needs it. In the medical field, there's some very interesting things going on. What we're most excited about is actually in the AR-VR space. For those who don't know, virtual reality is a lot more common, especially with Facebook purchasing Oculus Rift for, I think it was about two billion, about a year and a half ago. That's exciting for us because, not only does it have implications obviously in the entertainment space, but think about it for sports. The NBA in 2016 and 2017, they did a game once a week in VR, so for those who couldn't attend the game, you could put on your Samsung VR glasses and kind of sit in your living room and look around at the people next to you in the stands and then watch the game. Granted, as with all new technologies, it takes time to work out, but those are one of the implications where it will allow people to take vacations and see things, maybe from an education standpoint, they haven't ever seen before and might not get the opportunity to do. A classroom can go visit the Pyramids, for example. From an AR perspective, though, we think this has probably the best growth. The augmented reality space, a very simplistic way to think about it for those who have children or even themselves who are playing the Pokemon Go game last year. That's a very basic version of augmented reality. It just projects a virtual world onto the real world. The actual applications of this are really limitless, and it's also one of the things that are going to probably change our lives within the next five to seven years in the most fundamental sort of way. If you can think about it from an industrial standpoint of view, there's a company called Skill Up. They're currently still private, but they've worked with firms like Boeing to help improve their electricians' skill rate. Essentially, it will overlay, kind of augmented, what people need to do. You can talk to people in the field. It can create essentially holograms over the real world to help welders follow straight lines when they're welding. The applications truly are limitless, for the most part, so we're very excited about it.

Jason Lank: Bryce, this is Jason Lank. This is a fascinating discussion.

Bryce Tillery: Hi, Jason.

Jason Lank: Welcome to the show. I can't help but think that we're in the first inning of a ten-inning ball game here, and really probably some of the best ideas haven't even been thought of yet. We're so early in this. You spoke about the insulin pump. Recently, and this is ripped from the headlines, a company offered to implant a microchip in their employees, and this was voluntary. They could go to the snack bar and wave their hand, sort of like a human Apple Pay, and pick up lunch, but that's a step beyond. That's not wearing technology. That's integrating technology. Looking down the road, is that a potential growth area?

Bryce Tillery: Absolutely. We would still consider that a wearable technology, and a firm like that would be included in our index going forward, assuming they met the criteria, but that's where we're very excited about. Obviously, some people will have concerns about implanting something underneath their skin just to pay for something. There was a company called, I think it's called The Wander Ring, I was just reading about. It kind of makes you think of Lord of the Rings a little bit, but essentially it allows you to pay for things with your ring, and it has a two-point verification system. One would be it recognizes your fingerprint when you put on the ring, and then you can utilize it to do exactly what you said, pay for Starbucks. You can use it to turn on your car, to unlock your doors, but it's less intrusive than, say, having something implanted under your skin, but that's exactly where we're going. Both Apple and Google have filed for augmented reality contact lenses. If anybody remembers Google Glass when it came out, it was very clear there was a camera on there. They weren't, we would say, the most attractive glasses on the market, but as wearable technology does come down to contact lens form, it will truly change the way we live, kind of the way we interact with the world, we interact with others. Let's say a friend can't attend a birthday party. They can actually look through your glasses and say hi to everybody else there. Obviously, that does raise some privacy concerns and things like that, and those will be interesting to address as we move down the line here.

Nate Geraci: Our guest today is Bryce Tillery, CEO of Eve Capital. They're the sponsor of the WEAR ETF, ticker symbol WEAR. Bryce, when I look at the wearable tech industry, obviously, the hardware gets all of the headlines - the Apple Watches, the GoPros, the Fitbits, but what about the data these devices can collect? Are companies attempting to monetize this data in some fashion because it seems like there could be a huge opportunity here? I'm just thinking about people's exercise habits and how people improve their workouts over time. It seems like that data could be invaluable to someone.

Bryce Tillery: It absolutely is, and there is real value to it, and the courts have assigned real value to it, as well. If you think about it just from a fitness standpoint, there's already been companies out there who have asked their employees if they'd like to wear Fitbit style watches, but the data is sent directly to the insurance company, very similar to what some of the insurance companies were doing when they were driving. They'd have you put a sensor on your car to monitor your speed and things like that to help get a reduction in rates. This was the exact same thing. The idea was to get a reduction in rate on your insurance, but it can also have the countereffect, as well. It can actually maybe perhaps increase your cost, so that data is extremely beneficial. People can see your shopping habits. For example, let's say you have a Fitbit, and now they know that you take 15,000 steps every day. You get them in well. After two months, they might want to advertise to you a new pair of shoes. I mean, very simple things like that, but that data is invaluable but, again, it goes back to the privacy concerns that people need to be careful of when they choose a product or company they're working with. We didn't have to deal with that before, right? When you were buying a t-shirt, it was never a concern if data from your t-shirt was going to be sent to a firm.

Nate Geraci: Bryce, we have only about two minutes left here. A real quick two-part question. First, where does this ETF fit in an investor's portfolio? I also have to ask you, in looking at the assets in this ETF, they are pretty light, only a couple of million dollars.

Bryce Tillery: They are.

Nate Geraci: Though we should mention this ETF has only been out for about nine months, but is there any closure risk here? What's the game plan moving forward?

Bryce Tillery: I'll address both of those questions. As far as the asset level goes, it is light. A lot of that really just has to do with we feel, unless there's usually an anchor tenant - let's call it in the ETF space - usually it does take about a year before the market starts to take notice, and that is the hardest time to get the word out that this space even exists and has an opportunity for people to invest in, so we think that will come. As far as the ETF closing, I would say absolutely not. We're committed to this product for as long as we, for the foreseeable future. As far as the growth opportunity and where this fits in someone's portfolio, I would tell anybody to constantly examine their portfolio and look at if it goes into your growth play and reexamine the stocks and also the ETFs that you have and ask yourselves if they're really growth. Owning the S&P - call it the SPDR Technology ETF - is really not a growth ETF anymore. It has some aspects to it, but the real growth space is in the robotics section, the internet of things, the wearable space, some interesting areas in biotech. Those are kind of the growth segments of the market for the next 10-15 years, and we think our ETF sits very well in there.

Nate Geraci: Well, Bryce, with that, we'll have to leave it there. Excellent spotlight today. We wish you all the luck with this ETF. It's certainly a fascinating industry that, I think, has an enormous amount of potential. Thank you.

Bryce Tillery: Thank you so, so much. Take care.

Nate Geraci: That was Bryce Tillery, CEO of Eve Capital. Again, the ETF is The WEAR ETF, ticker symbol WEAR, and you can learn more about this ETF by visiting wearetf.com, that's wearetf.com.