BlackRock is bulking up its thematic suite, listing two new funds targeting popular well-performing niches, both of which track FactSet indexes.
- iShares Cybersecurity and Tech ETF (IHAK)
- iShares Genomics Immunology and Healthcare ETF (IDNA)
IHAK is entering a profitable niche and will compete with First Trust’s $840 million CIBR and ETF Manager’s Group’s $1.5 billion HACK. (HACK is the subject of an ongoing law suit).
In terms of investment strategy, IHAK picks companies that derive 50% of their revenue from a cyber security related fields, as judged by FactSet. The companies it chooses, which will overwhelmingly come from the tech sector. The fund will rebalance twice a year and reconstituted annually. While the companies can be global, 34 out of 39 at the time of writing are based in the US, the prospectus indicates. IHAK charges 0.47%.
IDNA, from what we can tell, is the first global biotech ETF to list in the US. IDNA begins by using RBICS definitions of the biopharma and healthcare sectors. It then invests in the biggest companies by market cap that FactSet judges to generate sufficient revenue from genomics and immunology. The weights of each company are capped at 4%, giving the fund something similar to the equal weight effect of State Street’s $4 billion biotech ETF XBI. The fund rebalances annually and charges 0.47%.
Analysis – profitable popular niche
Looking through the numbers its easy to see why BlackRock’s product factory would choose to set up tent here. Biotech and cyber security ETFs have been a wonder for ETF providers: they’re high margin, solidly performing and reliably attract assets. Talking about healthcare saving the world and cyber with its techy narrative also makes for an easy sales opener. With BlackRock’s distribution engine behind them, I’d imagine IHAK and IDNA will both be reliably profitable within 12 – 24 months.
Looking through the portfolio composition files for IHAK’s competitors its interesting to see a solid degree of difference. IHAK gives greater weight to smaller companies. It will be interesting to see how it competes.
|OKTA CL A ORD||7%||CISCO SYS INC ORD||4.67%||CISCO SYS INC ORD||6.40%|
|CYBER ARK SOFTWARE ORD||5%||SOPHOS GROUP PLC||4.31%||RAYTHEON ORD||5.92%|
|ZSCALER ORD||5%||CYBER ARK SOFTWARE ORD||4.29%||FORTINET ORD||5.10%|
|CACI INTERNATIONAL CL A ORD||5%||CACI INTERNATIONAL CL A ORD||4.04%||SPLUNK INC ORD||4.94%|
|BOOZ ALLEN HAMILTON HOLDING CL A ORD||5%||AKAMAI TECHNOLOGIES INC||3.98%||PALO ALTO NETWORKS ORD||4.90%|
|PROOFPOINT ORD||4%||SCIENCE APPLICATNS INTL CP NEW COM||3.90%||ZSCALER ORD||4.41%|
|DOCUSIGN ORD||4%||JUNIPER NETWORKS INC||3.69%||OKTA CL A ORD||4.26%|
|ARISTA NETWORKS ORD||4%||QUALYS INC||3.67%||BOOZ ALLEN HAMILTON HOLDING CL A ORD||3.72%|
|VMWARE CL A ORD||4%||AVAST PLC||3.47%||LEIDOS ORD||3.66%|
|PALO ALTO NETWORKS ORD||4%||CHECK POINT SOFTWARE TECH LTD ORD||3.39%||CYBERARK SOFTWARE LTD||3.54%|