As the number of ETFs in the U.S. market quickly approaches 1,500 in total, some analysts are beginning to think that the ETF industry is running out of steam. There are only so many different ways to slice the market, and some believe that we are fast approaching this ceiling.
However, some recent launches and filings have dispelled that notion, at least for the time being. We have seen novel product split the market in a number of sectors, be it in the Chinese market with funds targeting companies that could benefit from the country’s five year plans (KFYP), or new global markets such as Nigeria (NGE).
Beyond these recently launched products, there are still plenty of interesting funds in the pipeline that could be solid picks for some niche focused investors. In particular, a recent filing from Exchange-Traded Concepts could be appealing to some, zeroing in on the robotics and automation industry for exposure (also see The Best ETFs in the Market’s Top Sector).
The new filing with the SEC called for a Robo-Stox Global Robotics and Automation Index ETF (ROBOF) to be listed on the Nasdaq exchange. While many details were not yet available for this new filing, we have highlighted some of the key points from the document below for investors intriguing by this ETF that may hit the market in the future:
ROBO in Focus
The ETF looks to track the Robo-Stox Global Robotics and Automation Index, charging investors 95 basis points a year in fees for exposure. The benchmark looks to track the performance of robotics-related and/or automation-related firms from around the globe (read 2 Sector ETFs Leading in Inflows).
The index provider defines these firms as those who derive a significant portion of revenues and profits from robotics or automation-related products or services. According to the filing, such products and/or services include any technology, service or device that supports, aids or contributes, in any capacity, to any type of robot, robotic action and/or automation system process, software or management.
Investors should also note that the index consist of a mix of ‘bellwether’ and ‘non-bellwether’ securities, with ‘bellwether’ firms being those that are indicative of the performance of the broad industry, while ‘non-bellwether’ firms have a distinct segment devoted to robotics/automation, although it might not be their entire business.
However, according to the filing, the index is generally weighted 40% to bellwethers and 60% to non-bellwether securities, possibly due to the relatively small size of many of the likely ‘bellwether’ firms.
Beyond this focus, companies must also have a market capitalization exceeding $200 million, and a minimum trailing one-year average daily volume of $200,000. The index is rebalanced on a quarterly basis, while additions can be made on the same frequency, although deletions can be made at any time (read Buy These ETFs to Profit from Sector Rotation).
Other Products Already on the Market
While ROBO would be the first robotics/automation ETF on the market, there are a few other niche ETFs that are targeting specialized segments that could be of interest to some investors. These generally focus on technology, and seek to zero in on high growth segments of the industry.
In particular, the First Trust ISE Cloud Computing Index Fund (SKYY) and the First Trust NASDAQ CEA Smartphone Index Fund (FONE) come to mind in this space. The two both had their debut in 2011 and hold a basket of companies that focus in on their respective industries (see Inside the Cloud Computing ETF).
SKYY has seen a solid level of interest from investors, attracting over $100 million, while FONE has accumulated less than $10 million in a similar time frame. Clearly, these products can be rather hit or miss for issuers, even when they are targeting an in-focus industry (like smartphones).
Given this, it is hard to say how well ROBO will do if it ever hits the market. The fund could attract a decent level of assets like SKYY, or it could fall by the wayside like FONE. Either way though, it shows that there are at least a few segments left in the ETF world worth tackling by issuers, and that the end of ETF product development isn’t at hand just yet.
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