HACK & ROBO Funds On A Technical Roll

Sure the year is young, but nonetheless, there are trends forming. In the ETF world, there are two funds that probably are flying under your radar. And when I say “flying,” I mean in both demand and performance.

The PureFunds ISE Cyber Security ETF (HACK) and the ROBO Global Robotics and Automation Index ETF (ROBO) are two funds that come from the burgeoning thematic side of the ETF industry, which slices equities into narrow bands of focus. For these two funds, those focuses are, respectively, cybersecurity and robotics—certainly timely theses in our ever-growing global technical economy and world we live in.

ROBO has seen an increase of more than 50% in its assets under management since the beginning of the year, a remarkable achievement. The fund has attracted nearly $75 million in new assets, bringing its total assets under management to $221 million. It is also up 9% for the year, and up more than 50% in the last 12 months.

HACK has seen $104 million in 2017 inflows, putting its total AUM at $921 million as it begins to flirt with $1 billion in assets, a mark it has eclipsed before. In addition, the fund is riding a similar path of performance as ROBO, up 11.5% for the year so far and also up more than 50% in the last 12 months.

Both funds are outperforming the SPDR S&P 500 ETF Trust (SPY) year-to-date and over the last 12 months.

Year-To-Date Performance Of HACK, ROBO & SPY

12-Month Performance Of HACK, ROBO & SPY

HACK is the first cybersecurity ETF. It launched shortly before the Sony hack began dominating world headlines in November 2014, timing that propelled its AUM to over $1 billion before falling back as performance lagged in 2015.

HACK tracks an equal-weighted index that targets companies actively involved in providing cybersecurity technology and services. The index splits the industry into two types of firms: 1) those that create cybersecurity hardware and software; and 2) those that provide cybersecurity as a service.

The fund has 33 holdings and is on the high end of expense ratios, at 0.75%. There is another cybersecurity ETF, the First Trust Nasdaq Cybersecurity ETF (CIBR), which was launched nine months after HACK, has $172 million in assets and has performed very similar to HACK.

Robotic Fund Gets Competition

ROBO tracks a global index of companies involved in robotics and automation. “Drawing from a specialized selection universe dictated by a committee, ROBO holds a thin, cross-sector slice of global equities that its underlying index deems are, in one way or another, significantly invested in robotic and automation technology,” according to ETF.com’s fund report.

The fund’s expense ratio is a pricey 0.95% and was launched in October 2013. It recently was introduced to competition from the second robotic ETF, the Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ), which launched last September, has $14 million in AUM and a 0.68% expense ratio.

You could even make the argument that the 3D Printing ETF (PRNT), which also launched last summer, and has $15 million in assets, is a robotic-themed ETF.

Success Breeds Copycats

Steady inflows, probably more than performance, breed copycats in the ETF industry, so if the demand trend continues, I can see other issuers taking up the cybersecurity and robotic themes in an ETF wrapper.

But despite the performance and the seemingly growing demand for these ideas, not everyone has jumped on this digital bandwagon.

“[HACK and ROBO] seek to fill a thematic need for investors and can complement more diversified sector and growth products in a portfolio,” said Todd Rosenbluth, director of ETF & mutual fund research at CFRA Research. “Yet CFRA is negative on both ETFs as we have concerns about the high fees as well as the valuation of the holdings.”

At the time of writing, the author held none of the securities mentioned. Drew Voros can be reached at [email protected].