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Why Is This New ETF Growing So Fast?

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The ETF industry has been growing by leaps and bounds since last year with issuers launching products with varied themes every now and then. While 2014 turned out a historic year for the ETF industry with assets hitting the $2 trillion (approximately) mark and over 180 ETFs being rolled out, 2015 took the story a step forward. A little over three months into the year, the industry has seen more than 65 launches with average market cap of the industry crossing $2.1 billion (read: 5 Very Successful ETF Launches of 2014). 

However, investors should note that all products do not witness an equal share of success. Some stand to gain massively and generate assets within a short span while some fail to secure investor interest and finally succumb to a shutdown. Let’s take a look at which new ETF, launched this year, emerged out as the best asset gather.

Inside iShares Exponential Technologies ETF (XT)

Investors might be surprised to know that this ETF has amassed over $600 million since its debut in March this year. It is a standard many ETFs fail to meet even after three years of launch. Apparently, the ETF saw this easy, or rather unimaginable success due to its unique investing objective.  

The product looks to track the Morningstar Exponential Technologies Index that considers developed and emerging market companies which create or use exponential technologies, per the prospectus.  Exponential technologies replace outdated technologies, foray into underpenetrated markets and have the ability to influence the economy.

Big data and analytics, nanotechnology, medicine and neuroscience, networks and computer systems, energy and environmental systems, robotics, 3-D printing, bioinformatics, and financial services innovation are some the areas under exponential technologies that the fund uses.

Morningstar removes companies with an average past three-month daily trading volume under $2 million and market capitalization of $300 million or less. After that, the index ranks segregated stocks stressing on the exponential technology themes, and also favors smaller market capitalization over the larger (read: Apple Crosses $700B Mark: 3 ETFs to Ride the Uptrend).

If this was not enough, the fund is equal weighted in nature and rules out company-specific concentration risk.  No firm in its 199-stock portfolio accounts for more than 0.90% of the total.

The fund has a global footprint, though the U.S. takes over 65% of the portfolio. Sector-wise, the fund is heavy on IT (32.28%) and Health Care (28.7%). Telecom comes in at distant third with 12.4%. For this exposure, the fund charges 47 bps in fees.

Behind Investor Favor

The fund gets mileage from the booming technology sector. While the craze for tech-induced services or methodologies is steady in the U.S., the real drive lies in the under-penetrated emerging markets. The growing acceptance of smartphones, related devices and software applications in various other sectors lead to considerable demand for tech stocks.

Further, surging health care and clean energy stocks revolving around exponential technologies are adding to investors’ zeal. The product also does a great job in stock-specific diversification. This allows them to play the high growth space like technology in safety (read: Invest in Booming Technologies with These 3 ETFs).

Can the Uptrend Continue?

The technology ETF space is teeming with products. In fact, many issuers are coming up with unparalleled concepts targeting this popular area. There are already funds targeting cloud computing such as First Trust ISE Cloud Computing Index Fund (SKYY), robotics industry such as Robo-Stox Global Robotics and Automation Index ETF (ROBO) and the cyber security space such as Purefunds ISE Cyber Security ETF (HACK) (see all technology ETFs here).

The common part in SKYY and HACK is that both follow the technology sector solely. On the other hand, ROBO and XT follow a variety of sectors, technology being one of them.  This calls for a rather spread-out approach which might entice investors ahead. To add to this, specific investment criteria makes a fund well liked among investors and brings luck quickly as was the case for XT.  

So, we believe that XT will keep hoarding assets going forward, though the pace might slow down. iShares’ age-old experience in handling popular tech ETFs including iShares Dow Jones US Technology Sector Index Fund (IYW), iShares S&P Global Technology Sector Index Fund (IXN) and iShares S&P GSTI Technology Index Fund (IGM) will be an added advantage.

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