Cybersecurity ETF ‘HACK,’ Game Changer

A year ago, PureFunds was flying relatively under the radar as the company behind two defunct precious metals ETFs and a small silver fund. But fast-forward to today, and you’d be hard-pressed to find someone in the industry who hasn’t heard of the PureFunds ISE Cyber Security ETF (HACK | C-36), the first strategy to specifically target companies that are actively involved in providing cybersecurity technology and services.

HACK has grown to become a $1 billion-plus fund in a matter of months, having seen positive net inflows almost every month in the past year. Its performance has been nothing short of a roller-coaster ride, as seen below relative to the Technology Select SPDR (XLK | A-91) and the SPDR S&P 500 (SPY | A-99).

Chart courtesy of StockCharts.com

Andrew Chanin, CEO of PureFunds, tells us about his company’s path to this point, and offers insight into what he’s learned as a newcomer issuer.

ETF.com: HACK is turning 1 year old today. In some ways, this fund was a blockbuster no one saw coming—it gathered $1.1 billion in assets in its first year. What’s your biggest takeaway from HACK’s trajectory thus far?

Andrew Chanin: It’s shown to me that when an idea’s timing is right, it can be an extremely powerful thing. That’s especially the case in the ETF industry, where many people can get exposure to a product if they want it.

ETF.com: How sticky are those assets? Have you found that HACK resonates with retail and institutional investors, or do you worry HACK’s success could prove to be a fad as people focus on cybersecurity?

Chanin: A lot of people believe this is an industry in its early stages. I have yet to speak to a person who thinks there’ll be fewer cyberattacks going forward. No one I’ve spoken to thinks spending is going to go down in the future.

Perhaps that’s not enough of a sample size, but people are starting to take cybersecurity more seriously. And the benefit of an ETF is that people can get diversified exposure to a volatile industry without having to become experts on the individual stocks.

ETF.com: How has your company, PureFunds, changed as a result of HACK’s success?

Chanin: We’re now finding ourselves meeting people throughout the investing community who want to invest in our funds or want to try to partner-up to bring their ideas to market.

ETF.com: You first entered the ETF space three years ago with the launch of three precious metal and mining ETFs. Two of them have since shuttered—the PureFunds ISE Diamond/Gemstone ETF and the PureFunds ISE Mining Service ETF—and the PureFunds ISE Junior Silver ETF (SILJ | F-56) only has $4 million in assets today. What went wrong? And what led you to turn your focus from precious metals to tech stocks in HACK?

Chanin: Like any investor, ETF companies, too, need to offer a diverse group of products that behave differently in different parts of the economic cycle. It’s diversification. We’re still big believers in our silver fund. It’s by no means a smashing success, but some of it has to do with performance, given the timing of the launch.

We saw demand in technology. HACK’s reception was so strong that we’ve gone on to provide other funds focused on big data [the PureFunds ISE Big Data (BDAT)] and mobile payments [the PureFunds ISE Mobile Payments (IPAY)]. That doesn’t mean tech is the be-all-end-all, but it’s important to provide first-to-market concepts.

ETF.com: So, a first-to-market concept is important for a fund to stick? We are seeing a lot of new ETF issuers big and small come into the market for the first time. What’s been the biggest challenge you’ve faced in trying to carve a niche?

Chanin: There are just so many things that need to go right. You can have a great idea, but the timing could be off or you don’t have the ability to get the awareness out. Coming up with an idea that no one has had allows you to be different, and that helps, especially if you’re a smaller new issuer. But it’s difficult to compete with larger companies.

If a larger company already has a similar fund to the one you’re bringing out, it’s going to be very difficult to pull away assets from them, and convince people they should go with you instead. Timing is absolutely huge, and awareness is equally as important.

ETF.com: Looking back to the past three years, would you have done anything differently?

Chanin: That’s a tough question. I think if I could go back three years, I would launch a currency-hedged Japan ETF—how is that? In all seriousness, outside of launching a fund that would have attracted even more interest, which sounds like an impossible goal to have in retrospect, I’ve been pleased with the pace we’ve been able to grow.

Now, had you asked me a year ago, we were at a very different place. But now we’re getting on major investment platforms and getting into great relationships with people from all different places in the investing community.

Contact Cinthia Murphy at [email protected].