With the rapid advancement of technology such as artificial intelligence, 3D printing, cloud computing, the world is evolving at an unparalleled rate. Investors don’t want to miss the opportunities to invest in gigantic companies such as Google, Facebook when they were in their infancy days; an ETF wrapper offers them a great vehicle. Now the question is how to find the relevant indexes to package in this kind of ETF?
KLDW and XITK are two good existing products with $6.79 million and $74.77 million AuM respectively, the former launched in January 2016, and the latter in July 2015.
XITK, the SPDR FactSet Innovative Technology ETF follows FactSet Innovative Technology Index, it only includes the U.S. listed technology and electronic media companies, and deem companies residing at a particular or deeper level of granularity as a fair proximity to innovation. Fundamental sales growth within one year and three-year geometric average growth rate are also taken into consideration, finally, the index is equally weighted to tilt toward smaller market capitalization participants.
KLDW, Knowledge Leaders Developed World ETF, is branded under GaveKal Capital, tracks Gavekal Knowledge Leaders Developed World Index. Because Gavekal believes “knowledge effect”—the tendency of innovative companies to outperform, the list of stocks picked are regarded as “innovative technology” too. To construct this knowledge leaders index, Gavekal developed a proprietary model to compute a “knowledge intensity” test score, by vetting historical financial statements of public companies. A hefty expense ratio – 0.75% is charged for developing this sophisticated and meticulous intensity calculation system, compared to XITK’s expense ratio is about half – 0.45% because XITK’s underlying index is an algo-based automatic one.
Now compare the past performance of these two funds. We observe that XITK’s return since inception almost doubled that of KLDW, knowing that the algo-based XITK requires a much lower management fee than KLDW, the XITK certainly is more appealing a product for the investors.