US-based asset manager Principal has launched two thematic exchange-traded funds targeting US healthcare innovators and global firms catering for the millennial generation. The Principal Healthcare Innovators Index ETF (Nasdaq: BTEC) and the Principal Millennials Index ETF (Nasdaq: GENY), both listed on Nasdaq, join an increasing number of thematic ETFs seeking to take advantage of secular demographic trends.
Paul Kim, Managing Director of ETF Strategy for Principal Global Investors.
Commenting on the launch, Paul Kim, Managing Director of ETF Strategy for Principal Global Investors, said: “More and more, people want to invest in strategies they understand, whether that is a cause they support or their own lifestyle. It is our goal to provide investment options that connect with people while offering enhanced performance.”
The healthcare innovators ETF tracks the Nasdaq US Healthcare Innovators Index, a index designed to provide exposure to early-stage small-cap healthcare companies, primarily biotechnology and life science, which have the potential to create cures for cancer, develop new medical technologies, or spearhead other medical advances.
The eligible universe for the index is the collection of firms in the Nasdaq US Benchmark Index (disregarding the top 150 firms by market capitalisation) which have been designated as belonging to the health care sector according to the Industry Classification Benchmark. A liquidity screen is subsequently applied. Remaining constituents must be designated ‘non-earners’ in that they reported negative earnings in at least half of the previous eight quarters. Constituents are then weighted by modified market capitalisations with a single firm cap of 3%.
The fund has a total expense ratio of 0.42%.
The fund will likely come up against the ARK Genomic Revolution Multi-Sector ETF (NYSE Arca: ARKG), an actively managed ETF providing multi-cap exposure to innovative elements of the healthcare sector including bio-informatics, bio-inspired computing, molecular medicine, and pharmaceutical innovations. This fund has a TER of 0.75%.
The millennials ETF tracks the Nasdaq Global Millennial Opportunity Index, an index which seeks to capture the global spending and lifestyle activities of the largest generation ever, offering exposure to brand name companies specializing in social media, digital media, technology, healthy lifestyles, travel and leisure. The companies will evolve over time as the spending patterns of millennials change as they age.
The eligible universe for this index is collection of firms in the Nasdaq Global Index with market capitalisations greater than $200m. Constituents must exhibit either a high degree of medium degree of exposure to millennials. High exposure companies are broken down into two groups – large cap (40% index weight) and small-mid-cap (30% index weight). Large cap medium exposure millennial companies receive 20% of the index weight and small-mid-cap medium exposure firms receive 10% of the index weight. Within each bracket, the index employs a modified equal dollar weighting methodology.
As of 22 August 2016 the fund has significant exposure to the consumer services (51.0%), consumer goods (22.0%) and technology (17.9%) sectors. No single constituent holds over 2.7% weight in the portfolio. The fund has a TER of 0.45%.
Investors may also gain access to companies positioned to benefit from millennials through the Global X Millenials Thematic ETF (Nasdaq: MILN) which launched in May 2016 and tracks the Indxx Millenials Thematic Index. This fund, which was up 7.2% from its inception and 31 July 2016, has a TER of 0.68%.