ETF Expert Corner

Matt Bielski Talks Augmented & Virtual Reality, Future Tech ETF

August 7th, 2018 by ETF Store Staff

Matt Bielski, CEO of Defiance ETFs, explains augmented/virtual reality technology and highlights the recently launched Defiance Future Tech ETF (AUGR).



Transcript

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

Nate Geraci: The next ETF we're going to spotlight today is one that just launched last week, it's called the Defiance Future Tech ETF, ticker symbol AUGR. This focuses on investment opportunities surrounding augmented and virtual reality technology, and joining us via phone from New York to discuss this ETF is Matt Bielski, CEO of Defiance ETFs. Matt, great to have you on the program today.

Matt Bielski: Yeah, thanks for having me.

Nate Geraci: Matt, before we get to the ETF, I thought it might be helpful to first have you provide some background on augmented and virtual reality for people who may be unfamiliar with this space. I know there's a lot of cutting edge technology here, but just high level, what is this?

Matt Bielski: Sure, virtual reality is really meant to put the user in a simulated environment by really a computer-generated type of experience. You're kind of entering this simulated world. Where augmented reality really enhances your actual world with a digital interactive experience in real-time. So virtual reality you're entering a simulated environment, where augmented reality is you're really enhancing your current real environment in real-time.

Nate Geraci: In terms of augmented reality, I feel like this really went mainstream with Pokemon. Do you think that's when augmented reality sort of flashed on everyone's radar?

Matt Bielski: I mean, actually if you go back to the '90s, I don't know if you watch NFL or Monday Night Football, but back in, I think it was 1998, is when the NFL first implemented that first down yellow line. And that's really an example of augmented reality in sports for the first time. And since then, it's really evolved and proliferated from sports to gaming and to real life type of sectors like medicine and healthcare.

Nate Geraci: Well, it's interesting that you mention sports. Just last week I read an article in the Kansas City Star here in town where they talked about how the Sprint Center, which is the arena here, they're actually going to test augmented reality for some college basketball games, where fans can hold up their phones, face them to the court, and get immediate stats on players, they can track their movements. It really is amazing. It does seem like we're just scratching the surface with this technology. How has it evolved, I guess, in the sports arena from back in the '90s?

Matt Bielski: If you watched the NBA Finals, you saw augmented reality live in real-time with the announcers going on to the court and literally standing next to Steph Curry as he's shooting a half court shot. So you really experienced for the first time, really tangible in the NBA Finals most recently. But, I think more important than sports is really seeing how it evolved into the healthcare field. At Defiance, that's where we really believe it's going to cause real disruption. And if you look at augmented reality and why it will cause disruption, is imagine a surgeon doing a surgery. And before augmented reality, the surgeon actually had to cut open the individual to perform the surgery. With augmented reality, let's say you're doing a surgery on a tumor in your brain, now you can use augmented reality to see the actual tumor live in 360 degrees before going into the surgery. And that's why we think augmented reality from the real life surgeries and training is really going to kind of change the healthcare type of sectors.

Nate Geraci: Alright, so let's talk about the ETF, the Defiance Future Tech ETF. Again, ticker symbol AUGR. Explain for us what this ETF holds, how many holdings, how holdings are selected, anything else noteworthy.

Matt Bielski: Yeah, sure. This ETF really covers three main sectors within augmented and virtual reality. The first is interfaces and displays, that's about 36%. The second is gaming, which is around 20%. And the third sector is AI and machine-learning software, which is about 15%. So what we do is we benchmarked the BlueStar Augmented and Virtual Reality Index, which provides stocks to around 60 companies globally, across all market caps. So you're going to get exposure to stocks in the US, France, Japan, and Korea. And what's really important to note is that the index methodology is equally weighted, so you'll get exposure to companies like Facebook and Apple, but you also get less known companies like Dassault Systemes, Ferrell Technologies, etc. So it's a great way to kind of get precise exposure to companies developing and implementing the technologies behind augmented and virtual reality.

Nate Geraci: You know, in perusing the holdings of this ETF, you mentioned Facebook, they stuck out to me, Walt Disney. I know Facebook has some sort of a VR headset. Can you maybe tell us more about what both of those companies are doing around AR/VR?

Matt Bielski: Yeah, sure. Facebook, I think it was in 2014 they purchased Oculus VR for about $2.3 billion in cash and stock, and they've been really pushing out that VR set. My wife bought me one. It's actually really, really cool. So they're definitely in the forefront of the actual VR headsets. And Disney is doing something really cool, they're launching a virtual reality vest. So imagine entering this simulated world. So visually you experience all these things, and then you have a vest where you can physically experience, so that's almost like mixed reality. An example would be putting on a virtual reality headset and a vest and playing a boxing video game. So imagine boxing and actually feeling the punches on your body. So think about how that would really shape training for sports, for example. And that's led by Walt Disney, the actual vest.

Nate Geraci: Matt, we've touched on sports, you mentioned a really interesting example with healthcare, obviously Facebook and what they're doing, Disney. I'm curious, are there some technologies that maybe the average investor wouldn't be aware of or hasn't heard about in this space? Maybe something off the beaten path?

Matt Bielski: In regards to the actual exposure?

Nate Geraci: Yeah, just in terms of the underlying technology itself, and what's occurring around AR/VR.

Matt Bielski: Yeah, I think another example ... I served in the military and I think one thing we used was virtual reality headsets to actually experience what it would be like to enter a military conflict zone. So you think about it from a military standpoint, you look at the Marines or the Navy Seals doing a mission abroad. Think about actually, they can experience what it's like to go into an unknown place to perform a mission. So we think from a military application as well, it's going to disrupt and really help protect our troops abroad.

Nate Geraci: Our guest is Matt Bielski, CEO of Defiance ETFs. We're spotlighting the Defiance Future Tech ETF, ticker symbol AUGR. Matt, where did the idea for his ETF come from?

Matt Bielski: Well, actually, the funny part is my wife actually bought me one of those Oculus Virtual Reality headsets for Hanukkah and then I launched my ETF company. She was like, "You should launch an ETF for that." So then I kind of took a deeper dive and I looked into if there was actually a virtual and augmented reality ETF in the ETF space and, at that point, there really wasn't. And I looked at what's kind of taking over the investment world and it's disruptive technology. So we really saw a fit for this in an asset allocation portfolio as a complement to broad-based kind of cheap technology beta like QQQ. So really for a missing piece in a disruptive technology asset allocation model.

Nate Geraci: Well, on that note, any thoughts on thematic ETFs as a whole? I feel like sometimes they seem to take a lot of heat, people will say they're too niche, they're too gimmicky, too risky. You really hear it all. And maybe some of that is warranted in certain cases, but in your opinion, what makes for a good thematic ETF?

Matt Bielski: I think really maintaining the integrity of the underlying theme you're trying to benchmark. I don't even like using the word "thematic" because I really think it perverts what we're trying to accomplish. We're trying to give you disruptive beta exposure and by equally weighting an index, that's the first step in really constructing a good product because FAANG is in everyone's portfolios, but having equal exposure, the smaller growth companies in that index have the same exposure to a company like Facebook and Apple. But, more importantly, you have to ask yourself this, "Where does it fit in a portfolio?" So if you have a thematic ETF that's, whether it's political driven or just trying to capture the theme of the week, there really isn't room for that. For ETFs like augmented reality and ones that focus on specific technology themes like quantum computing, there is a place for that in the portfolio and that's in the technology sleeve as an alpha generation.

Nate Geraci: Matt, overall, we've touched on a number of the different technologies in this space, but can you maybe just state the overall investment thesis here, the investment case? Why might investors want to look at this longer term?

Matt Bielski: I mean, technology of our parents is not technology of today. If you look at what is real technology, it's the disruptive sectors - not only augmented and virtual reality, it's cybersecurity, it's robotics, it's AI, it's machine-learning, it's quantum computing. And we think that these sectors, that these companies, and these sub-sectors are going to really change all sectors across the board and it's going to become more important to have exposure to these type of companies in a portfolio.

Nate Geraci: Matt, I'm just curious, what's your background? How did you end up starting a new ETF company? You mentioned the background on the ETF, what's your background?

Matt Bielski: Yeah, good question. My background, I'm an ETF guy. I've only worked in ETFs throughout my career. I've worked at ProShares on the portfolio and trading side and helped structure some of the leveraged products there. Got great experience in being on the BlackRock iShares team really covering kind of top clients and understanding kind of the core of where ETFs fit in portfolio. And then most recently I was at Direxion, a premier leverage and inverse ETF provider, where I covered really large institutional type of clients which got me really good experience. So I've been always in ETFs, but I've also personally invested in a lot of Israeli tech start-up companies which really kind of sparked my interest in technology. And I looked at the competitive landscape and I realized there was really a missing piece - of a company that really focused purely on passive disruptive technology exposure and that's what we're going to focus at here at Defiance.

Nate Geraci: Where did the name of the company come from?

Matt Bielski: That's an even better question. The name Defiance, it's actually a movie about my grandfather, Zeisal Bielski. He staged the largest armed rescue of Jews by Jews in the Holocaust. So back in, I think it was '08, the film came out, and actually Liev Schreiber played my grandfather in the film, and Daniel Craig played his brother. So we named the company after that story, but more importantly, I think the name Defiance also fits into kind of disruptive technology themes that we're trying to really benchmark to as well.

Nate Geraci: Alright, we have just a few minutes left here. I know you probably can't speak to specific details, but can you perhaps give us any sense as to what might be in store for Defiance ETFs moving forward?

Matt Bielski: Yeah, I can talk very broadly. We want to provide passive exposure for disruptive tech. So we're going to really focus on the themes that are kind of missing in clients' portfolios. We can't talk about products that aren't filed for, but we did file for a quantum computing ETF, that ticker is QTUM. And we're going to be launching a bunch of other products that are kind of in that space. We want to offer basically, really a full model portfolio of carving all disruptive tech in a utopian world of portfolio.

Nate Geraci: And I have to ask you, you mentioned your background, you've been at ProShares, iShares, Direxion. As you look forward just at the ETF industry as a whole, what do you think the future looks like? There's certainly a laser like focus on fees. We've seen the growth in areas like smart beta. There's a lot of buzz around ESG, but the assets haven't necessarily been there. What's your overall outlook on the ETF space?

Matt Bielski: At Defiance, we don't believe in smart beta. We think there's going to be continued fee compression by the big players, iShares and Vanguard. They're going to go after the fixed income space, where we think there's a huge opportunity. We think potentially $1 to $2 trillion, but that's not really the space that we're competing in. We think that there's going to be a lot of fee compression and a lot more competition coming into the market.

Nate Geraci: So, what do you think just about the overall growth of the industry moving forward?

Matt Bielski: I mean, if you look at the numbers, I think it was BlackRock or Schwab who put out a report that there’s around $5 trillion in ETFs and over the next five years, can go anywhere from $10 to $20 trillion. So we think with the proliferation of fee-based business, advisor fee compression, natural adoption of ETFs from overly priced benchmark hugging mutual funds. And we think that there's only going to be continued growth and we think this is really - and I've been in ETFs since 2008, and to see how they've grown and become so popular - I still think we're at the beginning stages of ETFs.

Nate Geraci: Well, Matt, with that we'll have to leave it there. Really appreciate you joining us on the program today. Congratulations on the launch and best of luck to you.

Matt Bielski: Awesome, thank you so much for your time. I really appreciate it.

Nate Geraci: That was Matt Bielski, CEO of Defiance ETF. Again, the ETF is a Defiance Future Tech ETF. And you can learn more about that ETF by visiting DefianceETFs.com, that's DefianceETFs.com.