ETF Shakeup: PureFunds Brand Name Ousted

July 31, 2017

Fee Dispute?
According to Masucci, PureFunds filed a lawsuit against the PureFunds advisors and trustees at the start of May regarding a fee cut. He says the fund’s board of directors saw the fee cut as necessary, given the fee compression in the ETF industry, noting that the First Trust Nasdaq Cybersecurity ETF (CIBR) charged less than HACK. Currently, both funds come with an expense ratio of 0.60%.

“It was the right thing to do, and it’s been extremely well received by the market. We have a requirement to operate first and foremost in the best interests of the shareholders of the fund, and that’s what we do,” Masucci said, noting that the SEC requires that issuers review management fees on a quarterly basis against competing products.

He described Chanin’s involvement in HACK as “grossly inflated since the beginning,” noting that the ideas were those of Kris Monaco and the ISE, and that ETFMG had handled 100% of the operations.

“It was a good story to say that this kid is an ETF wunderkind that created these ideas. I think that’s confusing to the market,” Masucci said. 

Affected Funds

The affected funds include the following:

"This makes the track record of HACK, which is approaching its three-year record, less meaningful. We’d expect that some of the holdings will change as well, given the broad mandate of cybersecurity," said Todd Rosenbluth, director of ETF and mutual fund research at CFRA, in reference to the changes.

However, Masucci says Monaco’s new firm has created indexes that are very similar, with all the same holdings. He adds that the new methodology addresses some concerns that the advisor had about the indexes, and although the weights are not the same, they are very close. 

Additionally, two of the PureFunds—the PureFunds Solactive FinTech ETF (FINQ) and the PureFunds ISE Big Data ETF (BIGD)—will cease to trade after the markets close today in a move that had been well-telegraphed previously.

PureFunds is best-known for the success of HACK, which shot to fame shortly after its launch, which was followed by a major international hacking episode that drove assets into the fund. Today it has $1.2 billion in assets under management.  

Contact Heather Bell at [email protected]

 

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