ETF Expert Corner

PureFunds CEO Spotlights Cyber Security, Mobile Payments, & Big Data ETFs

February 9th, 2016 by ETF Store Staff

Andrew Chanin, CEO of PureFunds, spotlights their Cyber Security ETF (HACK), Mobile Payments ETF (IPAY), and Big Data ETF (BDAT).



Transcript

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 several ETFs today, all from ETF provider PureFunds and joining us via phone from New York to discuss these ETFs is the CEO of PureFunds, Andrew Chanin. Andrew great to have you back on the program.

Andrew Chanin: Thanks for having me.

Nate Geraci: Well Andrew, you know it's interesting, you actually joined us on the program back in late 2013 and boy quite a bit has changed for both you and PureFunds since that time. In late 2014 you launched the PureFunds ISE Cyber Security ETF the ticker on that, great ticker, h-a-c-k, HACK. This turned out to be one of the most successful ETF launches ever and you now have a couple new ETFs which we'll talk about in a moment. I'm just curious, what have the last few years been like for you?

Andrew Chanin: It has been a wonderful change for our business and you know, kind of speaks to, kind of proving that we were right, that there was a demand for new ideas, more kinds of specific schematics, targeted investments that weren't out there yet, which was kind of the vision from the beginning for PureFunds. It's been wonderful to see that there's demand out there for new concepts and doesn't need to be just from the largest issuers out there. That we can see innovation from smaller companies out there and it's really been wonderful to allow us to grow our business out strategically and to start growing and bringing in some very talented individuals on board as well.

Nate Geraci: Well I know back in August of last year, Bloomberg ran a fairly lengthy profile piece on you, it was titled, The One Man 1.2 Billion Dollar ETF Shop, and this really focused on the success of HACK and the entire back story of how HACK came to be. Tell us a little bit about that process because I think our listeners might find it interesting how an ETF like this comes to market. I know there was some great timing, obviously there was a need in the market, clearly a great ticker symbol. How did this ETF come to be?

Andrew Chanin: Right, so the article was a great piece and I really enjoyed seeing that come to life and what really happened was, the international securities exchange, one of our partners, had been working on this idea for a cyber security index for a couple of years and it was something they thought was going to be a growing important integral industry going forward and they approached me with this concept and fortunately I had the sense to say yes. I think this would be a really interesting concept to bring to market and let's do this. It wasn't just hearing about one breach or another breach that planted the seed for this idea, but it was something that came along with significant research. When you come up with a specific schematic kind of investment, something like cyber security, and part of the challenge is actually developing and determining and finding what exactly is cyber security. In doing so you're forced to understand and explore the entire global industry for cyber security and build this index and hopefully put it in the companies and the exposures that investors are ultimately looking for. I was fortunate that the ISE had positive experiences working with us in the past and wanted to expand our relationships and brought us this concept and as soon as I was confronted with it I was extremely excited to participate with them and helping bring this concept into what is now HACK.

Nate Geraci: Let's talk a little bit about HACK, the cyber security ETF, we have spotlighted this ETF on the program before. But for our listeners who may be unfamiliar with this, tell us what HACK holds and what it seeks to do?

Andrew Chanin: HACK holds over 30 publicly traded companies from around the world that specialize or receive a high percentage of their revenues directly from cyber security. It's broken down into two types of companies, we have infrastructure and service companies, infrastructure being the larger percentage of the funds. That focuses on companies that are producing and selling cyber security hardware or software, whereas the service side are those providing services and consulting services to other companies. Being that the cyber security industry is one that is constantly evolving and changing and adapting to new challenges and technologies. We saw that this was an industry that investors would like to see diversified exposure because it's difficult to say which company's going to supply the best solutions in the future. So having a diversified basket of companies from around the world that are specializing in different areas of cyber security could be an interesting investment opportunity for individuals or institutional investors as well.

Nate Geraci: Talk a little bit more about that from an investment standpoint, what do you see as the opportunity here? I know certainly with the recent turmoil we've seen, cyber security stocks take somewhat of a hit but, longer term what is the upside potential in this space?

Andrew Chanin: It's a really interesting industry and it's one where regardless of where we are in the economic cycle, where an individual company is in its own business cycle. This is an area where companies and governments are going to be forced to spend, so just because your company made more money than it did last year or it's losing money versus last year. Your company still is going to need to spend on cyber security, so down the road it could potentially provide uncorrelated returns to other areas within technology. That should be interesting to see where that will eventually play out, but it's also something where we're seeing larger diversified technology companies, diversified defense companies saying that they want to increase their footprint in the space and we've seen some M&A happen. Mainly on the private companies but it's something that is certainly possible for some of these larger diversified companies to start looking at public companies as options. Because it can be extremely costly and it can take a lot of time to actually develop cyber security solutions organically in house. Making acquisitions is something that can be done in this space, there's a lot of really interesting areas. Although the entire tech space has been sold off somewhat indiscriminately, this is one of those areas where spending is essential and the companies that are providing services and solutions could be very interesting for investors. Kind of what you said too, what we're looking to do is we're looking and with the other funds that we've launched as these kind of more long term growth industries. Previously you can invest in an individual cyber security company, but then you have all that company risk and the volatility of owning one individual company or you can invest in a broad based technology fund. Which might give you very little exposure specifically to that theme that you're looking to get exposure to. When we look for ideas we're hoping to provide exposure to areas that we think are long term growth potential, areas that are actually going to shape and determine how industries are going to operate moving forward. Cyber security being one of those integral industries in our opinion.

Nate Geraci: Again we're visiting with Andrew Chanin, CEO of PureFunds. Andrew I'm glad you mentioned that because as I mentioned earlier, last year on the heels of the success that you had with HACK. PureFunds launched two other ETFs, the PureFunds IAC Mobile Payments ETF, ticker IPAY and the PureFunds IAC Big Data ETF, ticker BDAT. Let's start with the mobile payments ETF, obviously paying via phone and through other electronic methods, this continues to grow in popularity. I actually just used my phone at Starbucks this morning, how does this ETF select holdings and what's the overall goal with this ETF?

Andrew Chanin: IAC defined mobile payments as mobile electronic and digital payment companies and right now it's comprised of companies that are considered hard networks, solutions companies, processors or infrastructure and software companies. As you kind of look through the holdings in that fund you'll see a pretty diverse range of companies and of various sizes somewhere around the world. This is an industry where we're seeing people shifting towards it because the lower transaction times, the lower transaction fees and ease of use. Those are reasons that consumers from around the world are increasing their use of mobile payments, now we also see other trends that, out there where some major governments are limiting the amount of cash total you can use in a transaction. In Europe we're seeing some countries like Spain saying that the maximum cash transaction is say 2,500 euros. In Italy 1,000 euros, so we're seeing these kind of bans in cash coming down the pipeline and in some of the Scandinavian countries are saying that they want to completely ban cash, potentially by 2020. Using mobile payment solutions is going to be imperative for them to be able to do that.

Nate Geraci: Okay, then the other ETF you launched last year was a PureFunds ISC Big Data ETF, ticker BDAT. First for our listeners that may not be familiar with this, what is big data, what do these companies do?

Andrew Chanin: Big data is traditionally defined as velocity, the three V's, velocity, variety, and volume and when you have all this data coming in from multiple outlets. You need to store it and figuring out what to do with this data becomes the question at hand, so what we wanted to do is develop a fund that was able to invest in what we think is big data. Which are the companies that are aggregating and originating the data as well as those that are processing this data to hopefully help companies extract value. You might see some companies that you're familiar with, that seem more so of the social network kind of companies and social media companies. But what these companies have are these vast troves of data, so on one side we have these companies that are sitting on massive stockpiles of data and have potential ability to monetize this data and extract value from it as well as the companies that are helping those with data, analyze their data. To help them make better decisions, better allocate their resources and better serve their clients.

Nate Geraci: I think good examples of those companies are Twitter, Facebook and LinkedIn, which I know are all holdings in this ETF. What's the investment opportunity here, why might this space here be attractive and how does a PureFunds Big Data ETF look to capitalize on this?

Andrew Chanin: One company that you mentioned, Facebook, it originally came out as a way for individuals to stay in touch with each other and talk about what they're doing and was originally kind of formed to be a social media company and what we've noticed is now through Facebook and through its other acquisitions. Some of the things that it has been able to do with this data that has been accumulating over the years, with the acquisition of Instagram, Facebook is now the largest database for photo's in the world and with that they've actually been able to develop one of the best facial recognition technologies out there. That's just one thing they've been able to do with their data, so I think kind of the exciting thing is not necessarily what we see these companies doing but the potential future inventions and breakthroughs that they may find from having all this data at hand. This is something that could be valuable to other retailers, that want to advertise to other people using things like Facebook or LinkedIn and could get better targeting advertisements out there. Or we think, the reason it's so interesting are the vast amounts of possibilities, not only that which are currently being proactively worked on by these big data companies but also the ones that could come out of nowhere just from having all this data at their disposal.

Nate Geraci: Andrew we have about two minutes left, if we look at all three of these ETFs, so HACK, IPAY and BDAT, how do you see these getting into an investor’s portfolio?

Andrew Chanin: We think that, previously how we mentioned, investors have the ability to pick individual securities or invest in a broad based say, technology fund. What we're providing is a way for investors to get targeted exposure to the specific areas that they're interested in, within that broader sector. These specific kind of industry exposures, yet that aren't so small or so adjacent that you very illiquid underlying holdings. We're looking to provide investors with a vehicle to capture the specific themes that they want the specific exposure to. Hopefully investors looking to say, yes I have exposure to technology but I really want exposure to the big data revolution or mobile payments or cyber security and hopefully other ideas down the road. Hopefully we're providing that vehicle for them to do so.

Nate Geraci: Well Andrew we'll have to leave it there, boy fantastic spotlight today, we really appreciate you joining us.

Andrew Chanin: Thanks for having me on.

Nate Geraci: That was Andrew Chanin, CEO of PureFunds and you can learn more about PureFunds ETFs by visiting PureFunds.com.