(Investor's Business Daily) 5G technology, while slowly being rolled out in major U.S. cities as we speak, is expected to be widely available to consumers by mid-2020. But why should investors wait this long? Defiance ETFs has made sure investors looking for the best ETFs to invest in this field don't have to.
Since March, the New York-based thematic ETF startup has given investors the opportunity to invest in a low-cost fund with exposure to stocks involved in this exciting technology ahead of the major rollout.
The launch of Defiance Next Gen Connectivity (FIVG) has proved a success. The ETF has amassed nearly $137 million in assets in a little over nine months. It charges just 0.3% in annual fees — a low price to pay to own a thematic fund.
The company was founded in early 2018 by Matthew Bielski, CEO, who brought his experience at BlackRock, Direxion and ProShares to Defiance ETFs. Paul Dellaquila, president, joined in August 2018. His financial experience spans 18 years at BlackRock's iShares, Merrill Lynch and SEI.
Dellaquila, who spoke with Investor's Business Daily for this story, says that prior to starting Defiance ETFs, they kept hearing from clients that certain themes weren't covered by the existing ETF providers: "There was potential for smaller ETF issuers to be able to win market share if they have a unique idea that investors want to actually put their dollars behind, that is easy to understand and a little bit more specific in how they would express their views in the context of a portfolio."
Defiance ETFs currently has three thematic ETFs that track BlueStar indexes. It's also shutting down its first ETF, Defiance Next Gen Video Gaming (VIDG), end December. And it's working on several other themes for future launch.
Dellaquila provided IBD with insights on the company, 5G tech, the why and how of its funds and its overall launch strategy.
IBD: When, how and why did you start Defiance ETFs? How is your firm different from other thematic ETF issuers?
Paul Dellaquila: Defiance ETFs was started in 2018 with the intention of building an ETF platform for the next generation of investors. Our focus is on providing investors with exposure to the most disruptive technologies, ones that are already having a significant impact on the ways in which we work and live, like 5G technology and new approaches to delivering sustainable food choices, and which are poised to have even greater impacts in the years to come. For a long time, investors have had an overwhelming number of choices when it comes to investing in big legacy tech approaches, but we're trying to do something different and provide exposures that are truly unique.
Best ETFs To Invest In
IBD: What is Defiance ETFs' mission in regards to providing the best ETFs to invest in, and how have you been fulfilling it since starting the company?
Dellaquila: When we started Defiance ETFs, we recognized an opportunity in the thematic category that was being underserved. Our mission to this day has been to provide investors more precise exposures to the areas of the market that are going to transcend our lives for years to come. That's meant to have a laser focus on the major trends that are unfolding across the investment landscape and always keeping our investors front of mind, which is why our funds aren't just among the firsts in their respective categories, they're also priced at extremely competitive levels.
What Is 5G Technology?
IBD: Your largest fund, Defiance Next Gen Connectivity ETF, has amassed over $130 million in assets in just a few months. What exactly is 5G? How is its development taking shape?
Dellaquila: 5G is the next evolution of wireless technology and connectivity. The 5G rollout is already taking place in many cities in the U.S. and will become even more broad in 2020 and beyond. The exciting thing about 5G is that this is a multiyear story of growth and evolution that will touch just about everyone, as improved connectivity will mean greater efficiencies and opportunities for innovation in everything from gaming to health care to logistics and more.
5G Companies
IBD: What kind of companies does the fund invest in and how do you select those stock?
Dellaquila: Our ETF is attempting to capture the entire ecosystem of the 5G rollout. We have companies who are focused on the infrastructure and cell tower buildout, along with mobile network operators, chip manufactures, and companies that are developing routers and the end-to-end solutions that will bring the 5G network to life. It's a fast-moving space and a trend not accurately captured by the legacy tech or telecommunications ETFs available at this point.
IBD: What do you think has been the main driver of such rapid growth in FIVG assets?
Dellaquila: There was obviously investor demand and appetite for this type of exposure. But the real success came because we executed on our mission. We developed a reasonably priced solution for investors to express a view to potentially one of the more exciting and transformative technologies of our generation.
How Defiance 5G ETF Is Different
IBD: How is the fund different from other 5G ETFs?
Dellaquila: In regard to competition, we believe FIVG provides the most targeted exposure to companies that will benefit from the 5G rollout. Moreover, FIVG is priced at only 0.30%, which is one of the lowest-cost thematic ETFs in the space.
IBD: Please tell us about your other funds: newly launched Defiance Food & Sustainability ETF (DIET) and Defiance Quantum Computing & Machine Learning ETF (QTUM), which is up 44% year to date.. What are their strengths and how are they different from anything else in the marketplace?
Dellaquila: DIET is our newest ETF. It is focused on food innovation and sustainability. Investors are becoming increasingly concerned with what they are putting into their bodies in the way of nourishment, they are more aware of environmental impacts that food production is having on our planet, and we are faced with challenges of a growing population putting more strain on the food supply chain. DIET is providing investors with exposure to the companies who are leading the way in sustainable methods of producing food and alternative methods of producing protein (i.e. plant based).
QTUM Is focused on providing investors exposure to the companies that are leading the way in quantum computing/technology development, and machine learning capabilities. The development of this technology will bring on the next generation of computing power that will be able to solve more complex problems that are impractical for today's even most powerful supercomputers. We are a first mover in this ETF category.
Keeping Fees Low
IBD: How are you able to keep such a low fee on your funds?
Dellaquila: The beauty of our model is that we run a lean organization. We have seven dedicated employees at Defiance ETFs. We keep our margins very thin.
The reality is, if we offered the same price point being a new issuer, we were dead on arrival. So, in our opinion, we needed to do something to shake up the industry, get our name out there and do something different that everybody else.
IBD: What is your process and philosophy behind launching a new thematic fund? Do you think you're ahead of other fund managers in terms of looking into the future?
Dellaquila: Our philosophy is to think of topics that are going to be important to investors for years to come and transform the way we live our lives. Then, once we land on ideas, we determine if the idea is something that is investable. If it is, we look at the ETF landscape to determine if there are already competitors in the marketplace that we must be aware of. When we decide to move forward with launching an ETF, we want to either be a first mover or take an existing idea that may already be in the marketplace and enhance it. Because of this philosophy I do believe this gives us an advantage over many asset managers.
More 5G-Like Defiance Funds On The Way
IBD: What is your launch strategy going forward? Do you have other funds in the pipeline?
Dellaquila: Yes, we are always looking at other strategies to enhance our lineup. The world of innovation is always changing so we try to be very forward thinking about what we are going to launch next. Because of this we can't disclose everything in our pipeline because it is currently not public information, but the track record we're building in spaces like 5G, sustainable food approaches and quantum computing should give investors a sense as to the kinds of investment opportunities we're deeply researching for the future.
IBD: Why did you decide to close Defiance Next Gen Video Gaming?
Dellaquila: VIDG was one of those rare cases where Defiance was not first out of the gate with an ETF providing targeted exposure. In fact, in 2018 and 2019, there were several ETFs that came to market offering exposure to the video game space. When it became clear that our firm and our clients would be better served by us focusing our attention and resources on our other funds and additional ideas in our pipeline, we made the decision to close the fund.
