ETF Watch: First Wearable Tech Fund Debuts

December 09, 2016

Today white-label ETF provider Exchange Traded Concepts is rolling out an ETF that targets a space previously unexplored by the ETF industry. The WEAR ETF (WEAR) will cover wearable technology and track an index provided by EQM Indexes. Vident Investment Advisory serves as the fund’s subadvisor, and Eve Capital is the sponsor.

WEAR comes with an expense ratio of 0.85% and is listed on the Bats exchange. Bats Global Markets is the owner of ETF.com.

It was EQM that pitched the idea of WEAR to Exchange Traded Concepts.

“We thought it was very timely and a great idea,” said Garrett Stevens, CEO of Exchange Traded Concepts. He notes that some analysts expect the wearable technology industry to cross $70 billion over the next five years.

WEAR is the first ETF to focus on wearable technology, an area that spans multiple sectors.

New-Market Access

“The important part about [the fund] is the access to a new market,” he added. “We’re excited to give access to something that previously nobody had access to in one product.”

Stevens finds the product comparable to Exchange Traded Concepts’ previous launch, the $120 million ROBO Global Robotics and Automation Index ETF (ROBO), which debuted in 2013 and was the first fund to cover the robotics and automation space.

“You’re really giving someone first-of-its-kind access to a suite of companies that are all complementary and have growing exposure to a new industry,” Stevens noted.

The underlying index covers 54 components, 35 of which are U.S. companies, according to a fact sheet from the index provider. Companies must have at least $300 million in market capitalization to be eligible for inclusion and can be domiciled in developed or emerging markets.

The scope of the index covers companies that generate some of their revenues from the sale or manufacture of devices with technological applications that can be worn as an accessory or as a part of one’s clothing, according to the prospectus. The purposes of said devices can range from purely entertainment-related to industrial, military or medical uses.

Untethered Use

A key point of wearable technology, according to Stevens, is the fact that users are not tethered to anything, like a hospital room, but are instead free to move around while using the technology the device provides.

The tiered weighting system breaks components into core and noncore holdings, the prospectus said, with all of the companies equal weighted within their respective tiers, but the weighting of core holdings is multiplied by 1.5 to give those companies more influence in the index.

Core companies derive a significant amount of revenue from wearable technology, while noncore companies are expected to see an increasing amount of revenue from sales in the wearable space or companies that are primarily engaged in the manufacture of such products, the prospectus notes.  

Stevens cited GoPro and FitBit as companies that would fall into the core category, as their entire business is centered around wearable technology, but while a company like Apple sells the Apple Watch, it derives more of its revenue from things like personal computers and iPads, putting it in the noncore group.

Interestingly, the tech sector does not dominate WEAR’s index. Infotainment/lifestyle companies represent 23% of the index, and health care/medical companies represent another 23%. Sports and fitness firms comprise another 17%, while military/industrial companies are 15%, with the remainder of the index covering display, semiconductors and sensors.

Nor is it primarily startup firms. Almost half of the index (48%) is large-cap companies, with midcaps representing 37% and small-caps make up 15%.

Citigroup Helps Fill UWTI, DWTI Void

As the VelocityShares triple-leveraged oil ETNs neared their delisting at the close of business on Thursday, Citigroup announced that it would be launching a pair of VelocityShares-branded exchange-traded notes that are structured almost exactly the same way. They even have the same names and similar tickers.

The VelocityShares 3x Long Crude Oil ETN (UWT) and the VelocityShares 3x Inverse Crude Oil ETN (DWT) rolled out this morning, seamlessly filling the void left by the delisting of the VelocityShares 3x Long Crude Oil ETN (UWTI) and the VelocityShares 3x Inverse Crude Oil ETN (DWTI), which still have hundreds of millions of dollars in assets.

The two new Citigroup-backed ETNs have expense ratios of 1.50%, while the outgoing Credit Suisse products had expense ratios of 1.35%.

It should be emphasized that these are entirely new and separate products, and there will be no ability to convert the ETNs that delisted yesterday into the new ones that listed today.

However, investors looking to achieve similar coverage will have the ability to do so going forward, albeit at a higher management fee. Investors still holding shares of UWTI and DWTI will still need to determine their exit strategy.

Contact Heather Bell at [email protected].

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