Purveyors of thematic exchange-traded funds generally waste little time in trying to capitalize on au courant trends, and a prime example is today’s launch of the Direxion Work From Home ETF (WFH).
There’s a good chance you’re reading this article from the comfort of your home office, an office which perhaps didn’t exist until around March or so when Covid-19 clamped down and caused most white-collar workers to flee their office buildings. And many people believe the work-from-home trend is here to stay; perhaps not at current levels, but at least to a degree that heretofore was inconceivable.
Hence, the timely nature of this ETF, which invests in companies across four key sectors that make working from home feasible: cloud technologies; cybersecurity; online product and document management; and remote communications.
The WFH fund tracks the Solactive Remote Work Index, which selects constituents via a proprietary natural language processing algorithm called ARTIS that uses key words to evaluate reams of public information available in annual reports, business descriptions and financial news to identify companies involved in the aforementioned four sectors.
According to the prospectus, the algorithm ranks companies based on their relevance to the key words and assigns a score to each company. The top 10 ranked companies within each of the four technology sectors are included in the equally weighted index, which is rebalanced semi-annually.
“I think this is a robust process for a product like this because I know the established players in cloud [technologies]—that’s Amazon and Microsoft. They’re in the portfolio,” said David Mazza, head of product at Direxion. “But I don’t know some of the emerging cloud technologies, and I wouldn’t necessarily know them if I simply did a revenue screen.”
He stated that algorithms can scrape vast amounts of data from financial reports or other sources and identify both the established and the emerging players in what Direxion calls the four technology pillars that support the remote work environment.
Indeed, the only names most investors would probably know among the fund's top 10 holdings are Zoom Video Communications (which literally and figuratively has become a household name) and Fortinent, a cybersecurity company.
Good Timing
Direxion forged its path in the ETF space by specializing in inverse and levered products, but lately has been diversifying its product line by launching more buy-and-hold funds.
Mazza said Direxion had been kicking around ideas for a more traditional buy-and-hold thematic offering, and one of those ideas centered on the concept of the flexible, or remote work space.