PureFunds ETFS — those funds with the catchy ticker symbols — succeed or fall very quickly. PureFunds CEO Andrew Chanin is brash in explaining what differentiates his firm's novel offerings. Many managers, he says, are regularly developing new products without the fear of failure.
"It's not, 'What's the newest buzzword,' but it's, 'What are those transformational industries that we see are currently and potentially into the future, reshaping the global economy and different sectors as well?'" Chanin says, adding the risk for managers developing products based on what's trending may not always be apparent. It is the tried-and-true firms, he says, that will win the trust of their clients and succeed over the long term.
This, he said in a recent interview Money Management Executive, was put to the test amid the failure of two of the firm's first three launches; a diamond fund and a mining services fund.
"It was really important for us to do right by our investors and return capital in the way that they would deem acceptable, because we're in this for the long haul," Chanin said. "We want to continue to grow and find new investors and create new products to reach new investors, whose demands aren't being met by the industry."
That is the same mantra Chanin said PureFunds has kept with its newly launched fintech and healthcare technology ETFs.
What were the discussions like at PureFunds when deciding to launch its latest fintech ETF?
This is an idea that we have been working on for well over a year and an issue we have been following for several years and one that we have been absolutely thrilled with to bring out in the ETF space that focuses on the broader financial technology industry.
We are in the financial industry — we're seeing innovation and changes going along, and we're seeing new startup companies and existing companies shifting their business models because of new technological breakthroughs that are at time bringing many benefits to the financial community. It can also come in many forms. There are many types of transformational technologies that are being developed, or have been developed already, that are changing the look and the feel of the financial industry in comparison to how it looked several years ago.
When you look at broad-based financial products that focus on the financial industry, you many have exposure to the large banks and some of these other financial companies, but one of the areas that seems underrepresented in these exposures is the financial technology side of the market. Their mission statement is almost to disrupt the financial industry, so it seems like, in our minds, it's a very important piece of the financial industry and being shocked that people aren't really getting exposure.
How does PureFunds decide which sectors to focus its product launches?
It's all about providing something new; new exposures that we believe investors demand that we offer. I had the luck of getting a job right out of school for the Kellogg Group on the floor of the American Stock Exchange, and got to really see the evolution and development of the ETF market. It was an extremely unique opportunity to understand how ETFs work, how to price them, where there are inefficiencies and where there are opportunities.
What we have done is try to look for the specific investment opportunities that are out there. I looked at all the different sectors that are out there. Instead of saying," Let's do a financial ETF," I was really interested in looking at the high-innovation areas within the sectors that people are familiar with. So then we carved out those areas and created an investment vehicle for people that want to get exposure and want diversification in that exposure — on top of that diversification; global exposure.
If you look at our suite of products, you'll notice that they are in those high-innovation areas. It's not necessarily in their core portfolios, so it's something that can complement other holdings and exposures that they're probably not getting from broad-based fund investing.
How much of that is about developing something that fills a gap in the industry versus finding what's new to drive attention from a marketing standpoint?
It's not about taking a buzzword and creating a fund around it. There's a tremendous amount of research and discussion that goes into building out these ideas into actual investable products. There have been several times where we have liked an idea, and the sound of it, and then when putting it together we say, "This is an industry that I don't think that someone that wants to invest in this industry wants these exposures." Or we will build the fund and it has significant overlap with something else that's already out there. Then we might say, "Let's put that on the back burner and focus on other areas where we believe that there's investment demand and we are actually providing investors something new with new exposures.
It's not, "What's the newest buzzword," but it's, "What are those transformational industries that we see are currently and potentially into the future, reshaping the global economy and different sectors as well.
We want to create something that's in the industry that people are hopefully familiar with now, but maybe not familiar and maybe they ought to be, and we also need to educate the investment industry on these industries and why there may be opportunities there. When they open a fund we want to make sure they're getting new exposures. Why would you want two different ETFs with the same name that gives you overlap?
What are the efforts PureFunds has taken in gauging what your clients need in regards to ETF launches?
It's all about finding those new exposures. It's looking at that traditional sector and saying, OK, what is a high-innovation area within the sector. Is this being offered in investable products? And are there enough companies in this industry that you can perhaps provide exposure for? Is it a real industry? And do we think it has legs? When we find those and do the research, and put the time in and build up the indexes and several different variations of it, we try to determine the different types of rules to allow the index provider to build an index the investor would be interested in and make sure we are coming forward with that.
It's looking at liquidity; it's looking at how long the industry has been around, how many companies are getting into it and it's about finding what the private space looking like. There are many different things that we look at, including themes that will hopefully evolve over many years.
What are the risks for firms that launch several ETFs that flop?
If those companies start getting the reputation of throwing a bunch of stuff out there and not holding the product like they do with other ones, maybe investors will want to pick more time to see if they think that other people are getting involved and that it will be something that is going to come along. That might make it more difficult for the fund to raise those critical assets to qualify wave of investors' criteria.
Certainly, some investment firms have minimum requirements on the different sides, and if people don't trust that the funds help base won't be there to support the growth of the fund, people may be less inclined to want to take an earlier investment in the product that doesn't have assets yet.
For us, we try to do a lot to educate the investing public about the funds and get the awareness out. At the same time, those initial investors are certainly critical in helping raise assets. Many people say volume begets volume, so when you bring out products it helps to get that initial volume. Certainly companies that come out with a bunch of funds and shut them all down, maybe they'll get labeled as a gimmick company.
Was this the same the new healthcare technology ETF?
This fund focuses on three different parts of the healthcare technology industry. It focuses on healthcare informatics, medical appliances and medical instruments, and to my knowledge, this is the first fund that makes the focus while trying to target these healthcare informatics companies, and it's something that I think may not be fully understood by everyone, but for healthcare informatics it will transfer data across the healthcare industry.
That could be patient file information from doctor to hospital, it could be hospitals communicating with hospitals, it could be implanted or connected devices on the patient that are sending real time data to healthcare providers or doctors. There's predictive analytics that are being gathered and computed in real time.
It is such a broad expansive part of the industry and we were surprised that there aren't funds that are highlighting these exposures. To us, this is a high-innovation area of the healthcare industry.
How is your healthcare fund different than the other larger healthcare funds?
Most of those funds have a significant portion that is looking at a pharma, biotech pharma and vaccines. This fund, the index does not try to invest in pharma and vaccine companies.
I think that's one interesting difference; as well as when you look at the weighting. There is pretty significant exposure to international companies outside the U.S., and I think that is something that investors that want to invest in this industry may decide to invest in a global diversified basket. This fund has 60 companies in it and it's the fund with the largest amount of holdings than any of the funds that we have brought to market.
That's because this is a very developed, and developing, industry with many players that are currently in this space and there are just so many intriguing companies to choose from.
So, I think it encompasses the entire industry and it is something that is also providing different exposures with little overlap to existing products.
Not only are these technologies necessarily helping companies that implement them or use them or the companies that are selling them — it is not all about these companies making a fortune.
A lot of this is helping companies reduce their cost, which can make it interesting in different market cycles, whereas some companies that maybe a brokerage account wants to see tons of trading going on, that's where on commissions that they may be making their money, some of these companies even in a down market have had interesting potential. They might be able to help a company remove inefficiencies and even save money by implementing their products. So you are getting to very different kinds of income streams from some of these companies in these industries.