The wearable technology industry is growing at an incredible pace with research indicating further momentum in the coming years. Wearables include mobile devices that can be worn on the body or attached to clothing for a variety of uses, such as sports, fitness, industrial, military and healthcare related applications. Some of the currently available wearable devices are activity trackers, smart watches, smart glass, body cameras, health monitors, virtual reality headsets, hearables and wearable industrial computers. These are bringing about a change in how people work and play.
Some analysts expect the industry to cross the $70 billion mark over the next five years. With investments in wearable technology being one of the hottest trends, investors now have these cutting-edge companies on their radar.
The trend has not gone unnoticed by the Exchange Listed Funds Trust, which recently launched the Wear ETF (BATS:WEAR), targeting this lucrative market.
We have highlighted the key information related to the fund below for investors who may be looking for a fresh out-of-oven play targeting the wearable tech space should it pass regulatory hurdles.
Fund in Detail
The fund seeks to replicate the performance of the EQM Wearables Index - WEARXT - thus providing exposure to companies that have a current or future business focus on wearable technology devices or components of such devices. The fund is expected to have a high concentration in the information technology sector. The fund has an expense ratio of 0.85% and is listed on the BATS Exchange.
San Diego-based index benchmarks provider for exchange-traded products (ETPs), EQM Indexes LLC, launched the index tracking the wearables segment earlier this year. One of the primary conditions for stock selection in the index is that the companies should derive revenues either from the sale of wearable devices or their underlying components like sensors, semis, and displays. Among other criteria, the stocks should have a market capitalization of at least $300 million, a minimum price of $5 per share, average daily traded value of over $2 million over the last six months, and adequate liquidity.
The modified, equal-weighted WEARXT Index tracks the performance of a basket of 54 stocks worldwide, out of which 34 are based in the U.S. GoPro (NASDAQ:GPRO), Insulet Corporation (NASDAQ:PODD), Garmin (NASDAQ:GRMN) and Apple (NASDAQ:AAPL) are some of the U.S.-based companies included in the index. In addition, the index has exposure to many international companies like Germany-based adidas (OTCQX:ADDYY) and Japan-based Seiko (OTCPK:SEKEY), which are involved in wearable technology in some way or the other.
How Does it Fit in a Portfolio?
This product could be an interesting choice for investors seeking exposure to the wearable technology market. With the advent of Internet of Things, wearable devices have been in the limelight for some time now, as they integrate computer and monitoring functionality into daily lives. The new ETF allows investors to benefit from breakthrough technologies and sales channels that are expected to continue to drive growth in this market.
As per International Data Corporation (IDC), roughly 101.9 million units of wearable devices are expected to be shipped in 2016, marking an increase of 29% over 2015. Total shipments are expected to more than double in 2019, representing a five-year compound annual growth rate (CAGR) of 20.3%.
In such a scenario, a wearable tech focus seems to be a good idea. The fund does offer some diversification benefit through its exposure to international markets.
The ETF does not have any direct competitor as there are currently no ETFs available targeting the wearable device market. The fund, if approved, could give investors a new way to play the technology equity market. The product might charge higher fees from investors annually due to its unique strategy.
However, there are a number of other information technology ETFs listed in the U.S. Of these, the ultra-popular fund, Vanguard Information Technology ETF (NYSEARCA:VGT), has a total asset base of $10.2 billion. This fund tracks the MSCI US Investable Market Information Technology 25/50 Index and holds 373 stocks in its basket. It trades in moderate volume of 426,000 shares per day and charges only 10 bps in annual fees.
Another fund that provides a similar broad exposure to the technology market is the Fidelity MSCI Information Technology Index ETF (NYSEARCA:FTEC) with an AUM of nearly $572.7 million. It exchanges roughly 131,000 shares a day.
Apart from these, WEAR could also face competition from the following semiconductor ETFs - VanEck Vectors Semiconductor ETF (NYSEARCA:SMH) with an asset base of $565.8 million and SPDR S&P Semiconductor ETF (NYSEARCA:XSD) with an AUM of $284.1 million.
The ETF has a good chance of making a name for itself, given the budding potential in the space. As per Forrester Research, 76% of global tech and business leaders plan to target the wearable device space as a tool to harness data and enhance customer interaction.