First Trust Files For Smartphone ETF (FONE)

by on August 6, 2010 | ETFs Mentioned:

As more and  more ETFs have hit the markets in recent years, most of the widely-followed broad market indexes have been transformed into (essentially) investable assets. More recently, much of the growth in the equity ETF space has come from funds offering more granular exposure to domestic and international stock markets; junior gold miners, wildcatters, and gambling companies are all the focus of various ETFs (with varying degrees of success). Some have lamented this increased granularity as a sign of ETF saturation, but it seems that there are still plenty of good ideas out there (as evidenced most recently by the impressive start of the Lithium ETF). Among the stones yet to be turned over: an automotive ETF, a Norway ETF, and a smartphone ETF [see Ten ETFs That Don't Exist But Should].

Maybe we’ll be able to scratch that last one off the list in the not-so-distant future; in a recent SEC filing, First Trust detailed plans to bring an ETF to market targeting Smartphone-related companies (with the clever ticker of FONE).

According to the filing, First Trust defines a ‘smartphone’ as a wireless mobile communication device offering advanced capabilities and functionalities, including Web access, through the use of an identifiable operating system. The proposed fund would track the NASDAQ OMX CEA Smartphone Index, a benchmark that includes companies primarily involved in the building, design and distribution of handsets, hardware, software and mobile networks associated with the development, sale and usage of smart phones. At the end of July, the index contained 81 securities.

Proof Of Concept?

Not everyone is convinced that the smartphone ETF is such a good idea. Some at Index Universe compared the idea to the failed HealthShares, wondering if FONE “may well ending up crossing that line of viability for a technology-related fund.” We’re more bullish on the investment thesis behind FONE and wouldn’t be surprised if the proposed fund is a big hit with investors. Given the sheer size of the rapidly-growing industry, the visibility of the products in everyday life, and the fact that the index would cover all ends of the value chain, the fund could potentially become quite popular. Moreover, there are no doubt many more high-profile companies operating in the smartphone space and than there ever were in the orthopedic repair market (one of the niches covered by the now-defunct HealthShares suite of ETFs), so it seems unlikely that FONE will go the way of HealthShares [also read Seven More ETFs That Don't Exist But Should].

The Wheaton, Illinois based issuer been pretty successful in the ETF space so far, currently offering more than 40 funds with about $2.8 billion in aggregate assets. Among the company’s most popular products include the First Trust Dow Jones Internet Fund (FDN), the First Trust NASDAQ 100-Tech Index Fund (QTEC), and the First Trust ISE-Revere Natural Gas Fund (FCG); each of these has at least $175 million in assets. The company is no doubt hoping for a similar reception for its latest ETF idea, which could hit the market sometime this year [also read Who Else Wants A Mobile Phone ETF?].

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Disclosure: No positions at time of writing.