The iShares Exponential Technologies ETF (XT) that launched this week is an unusual collaboration between a noted financial advisor, a respected financial research firm and the global leader in exchange-traded funds. What it offers investors, according to its creators, is a way to invest in technologies and themes that could potentially transform society and offer investment growth opportunities
The idea for the fund came from Ric Edelman, chairman and CEO of Edelman Financial Services in Fairfax, Va., one of the nation’s largest RIA firms. Edelman says he has been studying so-called exponential technologies that have the ability to accelerate the speed, efficiency, cost-effectiveness and power of how things get done, and in the process displace older technologies, create new markets and potentially make significant economic impacts.
“I began to try to identify ways we can incorporate companies engaged in this area into our client portfolios,” he says. “We couldn’t find a fund that accomplished this. There are a lot of tech funds, but they’re just sector funds playing the tech sector that all own the same stocks––Intel, Microsoft, Apple, Google and the like. They’re aggressive and volatile, which is the nature of the tech sector.
“That’s not what I was looking for,” he adds. “I was looking for companies that were using technology, not merely creating it, and using it to advance their businesses.”
When Edelman couldn’t find anything in the marketplace that fit the bill, he approached BlackRock about a year ago to gauge their interest in creating a product in their iShares fund family that fit the theme of transformational companies.
BlackRock liked the idea, reached out to Morningstar to create the index, and the two companies joined forces to create the fund.
The resulting iShares Exponential Technologies ETF is based on the Morningstar Exponential Technologies index. The constituents in this equal-weighted index represent nine technology trends that offer the potential to upend traditional ways of doing business: 3-D printing, big data and analytics, bioinformatics, energy and environmental systems, financial services innovation, medicine and neuroscience, nanotechnology, networks and computer systems, and robotics.
Constituents include companies developing and/or leveraging promising technologies.
According the fund’s prospectus, constituents are picked across all market cap sizes and geographic regions, and are ranked in an order emphasizing exposure to the exponential technology themes, with up to five leading companies within each theme included in the underlying index, with additional companies added until the index has 200 members.
“Only 30 percent of the fund is in technology stocks,” Edelman says. “I think anyone who looks at the details of the fund will be surprised by its construction. It’s not what you’d expect it to be, especially with the name of Exponential Technologies Fund.”