Relatively new kid on the ETF block, Defiance ETFs, has continued on its mission to pick off key themes with the launch this week of the Defiance Nasdaq Junior Biotechnology ETF (IBBJ).
Just two years old and with USD500 million in assets across three defiantly thematic ETFs, the firm was founded by President Paul Delaquila, who had spent 18 years at iShares, and Matt Bielski, CEO, formerly at Direxion and BlackRock.
Delaquila says: “We thought that the idea of thematics was feasible as if you look at the larger players in ETF land up to 88 per cent is dominated by the big firms. So, we wanted to do something different, not smart beta, and thought the thematic space fitted, offering ways to differentiate a portfolio. That was the genesis.”
Delaquila comments that a big firm’s sales person will focus on vanilla core bond or equity ETFs which take up 30 -35 per cent of the portfolio against the 1-2 per cent that thematics might take up.
“We are happy with the 1-3 per cent of the portfolio and can build a successful business on the back of that. We don’t need the volume – we can do it in a smaller way with a smaller team.”
Their biggest success has been their 5g ETF, FIVG, which launched in March 2019 and with the current climate of work from home (in fact, do everything from home) has seen boosted inflows with a more than doubling of assets since the beginning of the year. It started the year with USD170 million in assets and is now sailing over USD470 million.
“The catalysts have been what I hear anecdotally from talking to friends and colleagues of them seeing antennas going up and getting connectivity. The silver lining, if there can be a silver lining in all of this, is that companies have been forced to rip the band aid off and embrace the remote workforce.
“If you have WiFi, you can work from home. Most people can get as much done at home as working in an office 40-50 hours a week. 5g is built more for what we are doing today, whereas 4g was for 2009 when it launched – think about your cell phone or your Blackberry in 2009 and what you have today and what you can do on it today. The technology that was built for 2009 wasn’t enough for what we need to do today.”
The latest product is also well timed. The IBBJ offers investors exposure to small and mid-cap ‘junior’ companies with biotechnology universe with a market capitalisation of below USD5 billion.
“In this phase, two or three of development, you can get exposure to companies earlier in their life,” Delaquila says. “There will be winners and losers and also companies that are targets for acquisition so there are a few angles that you can look at this from. It’s a pure beta play and there hasn’t been another ETF focused on this sector yet.”
Defiance has recently filed for a Special Purpose Acquisition Company (SPAC) ETF and a junior semi-conductor ETF.
“If you want to differentiate for your clients these products make sense,” Delaquila says. “We are looking to bring ideas unique to the market and differentiated from other competitors. We are not trying to be a BlackRock or a Vanguard, we are trying to Defiance.”
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