When I think of “big data,” I immediately envision companies such as Oracle (ORCL) and International Business Machines (IBM) designing massive databases brimming with information.
These companies often provide the backbone for the structure needed to capture information, yet rely on other outlets such as social media and internet companies to accumulate user input.
To capitalize on this theme, PureFunds recently released the PureFunds ISE Big Data ETF (BDAT), which tracks an index of 32 companies engaged in data aggregation and structural support. This includes big names such as IBM and ORCL alongside top-tier Internet firms such as Google (GOOG, GOOGL), Facebook (FB) and Twitter (TWTR).
If the PureFunds name sounds familiar, it’s because it’s also behind the wildly successful PureFunds ISE Cyber Security ETF (HACK), which has accumulated over $1.3 billion in assets over the last eight months.
HACK was the first exchange-traded fund designed to focus solely on cyber-security companies, and benefited immensely from a fast-growing industry during a pivotal (read: vulnerable) time. BDAT will try to replicate the success of HACK by melding together a unique index of big data technology stocks with both growth and value characteristics.
The index BDAT tracks divides its constituents into two categories: application/solutions providers and data origination providers. Currently, 63% of the portfolio will be dedicated to applications, with 37% focused on data origination.
In addition, 86% of the portfolio is dedicated to U.S.-based companies, while just 14% reside overseas. This ETF will sport an expense ratio of 0.75%, which is similar to the other niche technology ETFs in the PureFunds family.
That expense ratio seems somewhat on the high side for an index-based ETF. However, investors have seemingly become more forgiving toward unique indices or focused industry groups with a value proposition they can’t find elsewhere. In this case, it’s big data.
Despite the relatively concentrated nature of the BDAT portfolio, it’s comforting to see well-known and established company’s represented in the top holdings. Based on market-cap size alone, the top 10 holdings in this ETF account for over 52% of the total asset allocation and will likely drive the majority of the index returns.
The Bottom Line
Rather than trying to pick individual stocks to play the big data theme, BDAT offers a structured way for growth investors to access a diversified basket of big data companies in one investment vehicle.
While it’s too early to say whether this fund will be an ultimate success, BDAT’s portfolio seems to be well positioned to capitalize on an area of the technology field with solid growth prospects.
From a fit perspective, BDAT might be considered as a tactical holding designed to overweight your portfolio toward this technology trend.
Bear in mind that more focused indices tend to come with higher volatility and should be positioned as such within your overall asset allocation.
David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management. To get more investor insights from FMD Capital, visit his blog, As of this writing, he held no positions in any of the aforementioned securities.
