Kelly Debuts With Thematic ETFs

January 13, 2022

The index provider behind the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR) and the Pacer Benchmark Industrial Real Estate SCTR ETF (INDS) is making its debut as an ETF issuer with three of its own funds.

The Kelly Hotel & Lodging Sector ETF (HOTL) and the Kelly Residential & Apartment Real Estate ETF (RESI) launched on the NYSE Arca, while the Kelly CRISPR & Gene Editing Technology ETF (XDNA) debuted on the Nasdaq. HOTL and XDNA carry an expense ratio of 0.78%, and RESI costs 0.68% in fees.

All three funds track their respective industries through indexes made by Kelly Strategic Management. That firm is headed by Kevin Kelly, a former managing director at Horizon ETFs and a developer behind the $6.2 billion Global X Nasdaq 100 Covered Call ETF (QYLD).

The indexes are weighted by float-adjusted market capitalization, rebalance quarterly and target stocks with at least $300 million in market capitalization and $1 million in three-month average daily volume. HOTL and XDNA are limited to developed markets, while RESI is limited to companies in the U.S. and Canada.

In an interview, Kevin Kelly said the underlying indexes are designed to provide targeted exposure to their respective real estate subsectors versus existing ETFs that combine real estate sectors altogether.

HOTL undercuts the AdvisorShares Hotel ETF (BEDZ), the only other U.S.-listed pure-play hotel ETF, by 21 basis points. RESI is the only ETF in the U.S. market that specifically caters to residential real estate companies.

Genomics already has several thematic ETF options in the market. However, Kevin Kelly argues that XDNA’s index is designed to capture exposure to companies that focus exclusively on genomics and gene editing as one-time treatments to replace the existing regime of therapeutics.

“[Existing pharmaceutical] companies will become obsolete when CRISPR and gene editing matures and there are more commercial uses,” he said.

This trio of launches are the first of several sector and thematic ETFs that Kelly has filed. The firm has filed prospectuses for funds addressing logistics, digital payments, the internet of things, technology and gene editing, according to SEC filings. The current plan is to launch two ETFs per quarter this year based on market demand and the performance of the ETFs that were launched previously.

The firm also filed for an ethereum futures ETF in late November, but withdrew that application a week later amid broader distrust from the SEC regarding cryptocurrencies in regulated investment vehicles.

Kelly said while he doesn’t know when regulators may allow ethereum futures to underlie an ETF, he believes ethereum will overtake bitcoin as the world’s largest cryptocurrency by market capitalization later this year and quell concerns over liquidity.

Bitcoin’s market cap was shy of $829.7 billion as of 1:30 p.m. Eastern Time Wednesday, while ethereum was at $398.94 billion.

Contact Dan Mika at [email protected], and follow him on Twitter

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