After HACK, Can PureFunds Do It Again?

The astonishing success of the cybersecurity ETF ‘HACK’ begs the question: What’s coming next from PureFunds?

ETF.com
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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

When the PureFunds ISE Cyber Security ETF (HACK | C-25) crossed the $1 billion-in-assets threshold earlier this month less than half a year after its launch, heads started turning. Was PureFunds, the upstart behind HACK, simply lucky, or can investors expect more innovative ideas in the future? ETF.com visited with PureFunds Co-founder and Chief Operating Officer Andrew Chanin to find out.

Chanin emphasized that his firm aims to be true to its goal of being first to market in providing “pure” access to particular pockets of the investment universe. He also gave credit to its partner in the HACK endeavor, the International Securities Exchange. The ISE created the index underlying the fund, came up with the clever ticker, and provided some of the marketing muscle that helped bring attention to the blockbuster ETF.

ETF.com: A billion dollars is a lot of money—you tapped into something big. Can you speak to it?

Andrew Chanin: When we launched this, we knew we were onto something big. But we didn't expect the speed at which it caught on. People get excited about different stocks out there like Apple and about Netflix, but this is the first ETF where I've really seen people from all different areas of the investment community really connect with an ETF.

I'm not sure exactly what the specific reason is—whether people didn't know that they wanted cybersecurity and then realized here was a diversified way to get exposure to the space. Or maybe it's the ticker, or maybe it's all the news that's come out about cyberattacks and people just really understand the timeliness now behind the fund launch.

ETF.com: Who came up with the ticker?

Chanin: That was the ISE.

ETF.com: Imitation is the sincerest form of flattery, and First Trust is nipping on your heels now with a strategy that's in registration. What are your thoughts going forward? You have $1 billion in the bag now, but is the easy money had, and now it's going to be more of a grind collecting assets?

Chanin: I'm very pleased with the index that ISE has created. Liquidity is something that’s very important to people from all areas of the investment sphere. And I think we definitely do have that advantage right now.

Had First Trust done it four months ago, I would be significantly more concerned. I'm sure they'll do fine marketing it because they have that manpower. But at the same time, I think we've developed a really interesting product. And I don't think there's much that someone else can do to try to reinvent it.

ETF.com: What it is about HACK’s index that you find so compelling?

Chanin: One really big thing that I see and PureFunds agrees on was that we want pure play. And that's kind of the whole concept on the name PureFunds. We want “pure” play exposure.

People who want to invest in these more thematic subsectors—subindustry kinds of investment ideas—I think want that pure-play exposure. And if you look at the indexing, and the weighting, you'll see that they put a significant attention to detail in selecting companies that have a significant amount of their revenues derived from cybersecurity-related operations.

ETF.com: And global in scope, too; is that crucial?

Chanin:
Certainly, if you look, there's some of the more old guard names, Cisco or Symantec. And then you also have newly IPO names like CyberArk, and companies in between.

ETF.com: And it's not a stretch—based on the conversations I've had with people about this ETF—that it has an alpha-seeking place in the context of holding something much more diversified, like a Technology Select Sector SPDR Fund (XLK | A-90), or something similar, right?

Chanin: Sure. And that was another thing: There's very little overlap in the ETF industry. If you're investing in a broad-based technology fund, you're not getting that much exposure to cybersecurity.

We think this is a tilt that a lot of people want to play, or a long-term theme that people want to be invested in. And unless you're an expert in the individual names, it's very difficult. So this is hopefully a vehicle that people that want to invest in.

ETF.com: What are your plans in this space to build on this particular success story? I’m skeptical you can repeat the “Midas touch” that you've had in this instance.

Chanin: We're trying a lot of different and interesting things. First, we cross-posted HACK in Mexico. That was a first for PureFunds. And as you probably know, we are looking to increase our offerings in the technology space.

ETF.com: I'll have to do a deeper prospectus-dive on those two registration statements detailing “information technology” and “consumer technology” ETFs.

Chanin: Wait till we launch. And then I’ll tell you as much as you want.

ETF.com: Understood. What else does the future of PureFunds hold? You hit a home run here with cybersecurity. You're going to plumb the tech industry a little bit more. But I'm talking about other ideas. You tried metals; it didn't quite work. Maybe the timing was bad. Can you reveal some of the other areas you consider promising?

Chanin: I can't, really. But I can say it's all about being the first mover. We're never going to be able to be the second to market. That's not our game.





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