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First Trust has launched a pair of equity ETFs in Europe that seek to capitalize on two in-demand and widely received investment themes: cybersecurity and biotechnology.
The First Trust Nasdaq UCITS Cybersecurity ETF (USD – CIBR LN; GBP – FCBR LN) and the First Trust NYSE Arca Biotechnology UCITS ETF (USD – FBT LN; GBP – FBTU LN) have listed on London Stock Exchange and provide exposure to companies operating in the fields of cybersecurity and biotechnology.
Both ETFs are offered with expense ratios of 0.60%. Income is accumulated within the portfolios.
First Trust offers the same underlying strategies in US-listed ETFs which collectively house $3.7bn in assets under management.
The First Trust Nasdaq UCITS Cybersecurity ETF tracks the Nasdaq CTA Cybersecurity Index which includes firms “primarily involved in the building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices, in order to provide protection of the integrity of data and network operations”.
Firms will be eligible for inclusion if they are classified as a cybersecurity company, as determined by the Consumer Technology Association (CEA), a standards and trade organization for the consumer technology industry in the United States.
To ensure adequate liquidity, the index only includes securities with a minimum market cap of $250m, a three-month average daily dollar trading volume (ADDTV) of at least $1m, and a free float greater than 20%. The fund itself invests in a collection of stocks and American Depository Receipts.
Companies that meet the criteria are weighted according to their three-month ADDTV with a single security cap of 6%. The index is reconstituted semi-annually and rebalanced quarterly.
First Trust’s US-listed cybersecurity ETF – the First Trust Nasdaq Cybersecurity ETF (CIBR US) – was launched mid-2015 and has $1.7bn AUM.
Gregg Guerin, Senior Product Specialist, First Trust, commented, “Cyber-crime had already been on the rise but has been greatly accelerated by the Covid-19 crisis pushing millions of people to work remotely, the importance of a secure internet is now, more than ever, absolutely paramount. Further accentuating this need, there had already been and continues to be a growing trend of companies storing data in the cloud and businesses increasingly are digitalizing their systems to ensure scalability and profitability. Thus, the critical importance of cybersecurity has never been higher. Businesses, governments and individuals are keen to protect against the reputational and financial damage caused by potential cyber-attacks and data breaches.”
Guerin continued, “Recent times have seen us witness an unprecedented reliance on the internet and digital solutions pushing cybersecurity to become arguably the fastest-growing defense budget item of any government, as well as the immune system for the lifeblood of many large companies and small businesses around the world.
Cameron Lilja, Vice President and Head of Research and Development for Nasdaq Global Indexes, added, “We are currently seeing enormous growth, exacerbated by the Covid-19 pandemic, in sophisticated technologies such as cloud computing, artificial intelligence, big data, and analytics. This growth has been matched by an increasing requirement for effective cybersecurity solutions, and the Nasdaq CTA Cybersecurity Index offers an effective method for tracking these trends. Our work with First Trust has accelerated opportunities for the investing public to access this strategy.”
There are several ETFs in Europe already covering the cybersecurity theme. The most established of these is the $1.5bn L&G Cyber Security UCITS ETF (USPY LN) which costs 0.75%. Newer competitors have looked to compete on price – the iShares Digital Security UCITS ETF (LOCK LN) and Rize Cybersecurity and Data Privacy UCITS ETF (CYBR LN) come with expense ratios of 0.40% and 0.45% respectively.
The First Trust NYSE Arca Biotechnology UCITS ETF is linked to the NYSE Biotechnology Index which selects its constituents from a universe of US-listed common stocks and ADRs. Eligible companies include those carrying out operations in DNA technology, molecular biology, genetic engineering, monoclonal antibody-based technology, lipid/liposome technology, and genomics.
Firms must have a market capitalization above $1bn and an ADDTV greater than $1m. A total of 30 constituents are chosen so as to design a high-quality index that reflects large-, mid-, and small-cap biotechnology companies while limiting the impact of pending corporate actions, litigation, and geopolitical events. Constituents are equally weighted, and the index is reconstituted and rebalanced quarterly.
First Trust’s US-listed biotechnology ETF – the First Trust NYSE Arca Biotechnology Index (FBT US) – has been around since 2006 and currently houses $2.0bn AUM.
Guerin said, “As the world steps-up in the battle to beat Covid-19, the health care sector, especially biotechnology is taking a leading role in providing solutions. The outlook for investing here is positive with impending drug launches, cost-cutting efforts, an aging population, increasing health care spending, increased merger and acquisition activity as well as potential expansion into emerging markets.
“In many ways, as the name suggests, biotechnology has always been at the center of two of the longest mega-trends in human history, in that as humans, we innovate and we live longer. In this case, we innovate to live longer, healthier lives.”
Rupert Haddon, Managing Director, Head of Sales and Distribution, First Trust, added, “Cybersecurity and biotechnology are two of the world’s fastest-growing themes and we are incredibly excited to be adding to our suite of innovative thematic UCITS ETFs which should give investors precise tools to better express their own investment beliefs.
“Given the challenges of lockdown and the current global situation, never have these technologies been more relevant and in demand, one could make the argument that along with cloud computing, they are becoming modern-day utilities. These flexible, liquid ETFs provide an efficient, low cost and diversified way for investors to capitalize on this growing market, and we are excited to be able to offer advisers a vehicle to assess these important themes.”
Invesco and BlackRock also offer biotechnology ETFs in Europe. The $620m Invesco NASDAQ Biotech UCITS ETF (SBIO LN) comes with an expense ratio of 0.40%, while the $220m iShares Nasdaq US Biotechnology UCITS ETF (BTEK LN) costs 0.35%. Both funds are linked to the Nasdaq Biotechnology Index.