A Wearable Technology ETF on the Cards?
The wearable technology industry is growing at an incredible pace with research showing that the industry is set to explode in the coming years. Wearables include mobile devices that can be worn on the body or attached to clothing for a variety of uses, such as, sports, fitness, industrial, military and healthcare related applications. Some of the currently available wearable devices are activity trackers, smart watches, smart glass, body cameras, health monitors, virtual reality headsets, hearables and wearable industrial computers.
Some analysts expect the industry to cross the $70 billion mark over the next five years. With investing in wearable technology being one of the hottest trends, many investors have these cutting-edge companies on their radar (read: Tech ETFs that Braved the Storm in February).
The trend has not gone unnoticed by Exchange Listed Funds Trust, which has recently filed for The Wearable Technologies ETF (WEAR), targeting this lucrative market. While some key information, such as expense ratio, was not available in the initial release, other important points were released in the filing.
We have highlighted those below for investors who may be looking for a fresh out-of-oven play targeting the wearable tech space should it pass regulatory hurdles (see all Technology ETFs here).
Proposed Fund in Detail
As per the SEC filing, the proposed fund will seek to replicate the performance of the EQM Wearables Index – WEARXT – thus providing exposure to companies that have a current or future business focus on wearable technology devices or components of such devices. The fund is expected to have high concentration in the information technology sector.
San Diego-based index benchmarks provider for exchange traded products (ETPs), EQM Indexes LLC, has launched the index tracking the wearables segment earlier this month. One of the primary conditions for stock selection in the index is that the companies should derive revenue either from the sale of wearable devices or their underlying components like sensors, semis, and displays. Among other criteria, stocks should have a market capitalization of at least $300 million, a minimum price of $5 per share, average daily traded value of over $2 million over the last six months and adequate liquidity.
The modified equal-weighted WEARXT Index tracks the performance of a basket of 45 to 55 stocks worldwide. Fitbit, GoPro, Garmin and Apple are some of the U.S.-based companies included in the index. In addition, the Index has exposure to many international companies like Germany-based Adidas, Japan-based Seiko and Denmark-based GN Store Nord, which are involved in wearable technology in some way or the other.
How Does it Fit in a Portfolio?
This proposed product could be an interesting choice for investors seeking exposure to the wearable technology market. With the advent of Internet of Things, wearable devices have been in the limelight for some time now, as they integrate computer and monitoring functionality into daily lives.
As per International Data Corporation (IDC), roughly 111.1 million units of wearable devices are expected to be shipped in 2016, marking an increase of 44.4% over 2015. Total shipments are expected to almost double in 2019, representing a five-year compound annual growth rate (CAGR) of 28%.
In such a scenario, a wearable tech focus seems to be a good idea. As such, the fund might be a great choice among a plethora of choices. The fund does offer some diversification benefit through its exposure to international markets.
ETF Competition
The proposed ETF does not have any direct competitor as there are currently no ETFs available targeting the wearable device market. The proposed fund, if approved, could give investors a new way to play the technology equity market. The product might charge higher fees from investors annually due to its unique strategy.
However, there are quite a number of other information technology ETFs listed in the U.S. Of these, the ultra-popular fund, Vanguard Information Technology ETF (VGT), has a total asset base of $8.2 billion. This fund tracks the MSCI US Investable Market Information Technology 25/50 Index and holds 383 stocks in its basket. It trades in moderate volume of 401,000 shares per day and charges only 10 bps in annual fees.
Another fund that provides a similar broad exposure to the technology market is MSCI Information Technology Index ETF (FTEC) with AUM of nearly $369.7 million and exchanging 193,000 shares a day (read: Tech Face Off: Alphabet Versus Apple ETFs).
Apart from these, WEAR could also face competition from the following semiconductor ETFs – Market Vectors Semiconductor ETF (SMH) with an asset base of $323.9 million and SPDR S&P Semiconductor ETF (XSD) with AUM of $194.3 million.
Thus, the proposed ETF, if launched, has a good chance of making a name for itself, given the budding potential in the space. As per Forrester Research, 76% of global tech and business leaders plan to target the wearable device space as a tool to harness data and enhance customer interaction.
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VIPERS-INFO TEC (VGT): ETF Research Reports
FID-INFOTEC (FTEC): ETF Research Reports
MKT VEC-SEMICON (SMH): ETF Research Reports
SPDR-SP SEMICON (XSD): ETF Research Reports
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