When I think of “big data,” I immediately envision companies such as Oracle Corp (NYSE:ORCL) and International Business Machines (NYSE:IBM) designing massive databases brimming with information. These companies often provide the backbone for the structure needed to capture information, yet rely on other outlets such as social media and internet companies to accumulate user input.
To capitalize on this theme, Pure Funds recently released the PureFunds ISE Big Data ETF (BDAT), which tracks an index of 32 companies engaged in data aggregation and structural support. This includes big names such as NYSE:IBM and NYSE:ORCL, alongside top-tier internet firms such as Google Inc (NASDAQ:GOOGL), Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR).
If the Pure Funds name sounds familiar, it’s because they are also behind the wildly successful PureFunds ISE Cyber Security ETF (NYSE:HACK), which has accumulated over $1.3 billion in assets over the last 8-months. HACK was the first ETF designed to focus solely on cyber security companies and benefited immensely from a fast growing industry at a pivotal (perhaps vulnerable) moment in time.
Now DBAT will try to replicate that success by melding together a unique index of technology stocks with both growth and value characteristics. The index DBAT is based on divides its constituents into two categories – application/solutions providers and data origination providers. Currently, 63% of the portfolio will be dedicated to data structure, with 37% focused on front-end data accumulation.
In addition, 86% of the portfolio is dedicated to U.S.-based companies, while just 14% reside overseas. This ETF will sport an expense ratio of 0.75%, which is similar to the other niche technology ETFs in the Pure Funds family.
That expense ratio seems somewhat on the high side for an index-based exchange-traded fund. However, investors have seemingly become more forgiving towards unique indexes or focused industry groups with a value proposition they can’t find elsewhere.
Despite the relatively concentrated nature of the BDAT portfolio, it’s comforting to see well-known and established companies represented in the top holdings. Based on market-cap size alone, the top 10 holdings in this ETF account for over 52% of the total asset allocation and will likely drive the majority of the index returns.
The Bottom Line
Rather than trying to pick individual stocks to play this theme, DBAT offers a structured way for growth investors to access a diversified basket of companies in one investment vehicle. While it’s too early to say whether this fund will be an ultimate success, its portfolio seems to be well positioned to capitalize on an area of the technology field with solid growth prospects.
From a fit perspective, DBAT might be considered as a tactical holding designed to overweight your portfolio towards this technology trend. Bear in mind that more focused indexes tend to come with higher volatility and should be positioned as such within your overall asset allocation.
Disclosure: FMD Capital Management, its executives, and/or its clients may hold positions in the ETFs, mutual funds or any investment asset mentioned in this article. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.