On Thursday, ProShares, a premier provider of ETFs, announced the launch of three new thematic ETFs: the ProShares S&P Kensho Smart Factories ETF (MAKX), the ProShares Big Data Refiners ETF (DAT), and the ProShares S&P Kensho Cleantech ETF (CTEX).
“Each ETF is designed to offer investors exposure to a rapidly changing industry, from the automation of manufacturing to enhanced analytics and big data processing, to powering the transition to clean energy,” said ProShares CEO Michael L. Sapir. “We are pleased to expand our family of ETFs with these new funds.”
MAKX follows the S&P Kensho Smart Factories Index, DAT tracks the FactSet Big Data Refiners Index, and CTEX tracks the S&P Kensho Cleantech Index.
CTEX, DAT, and MAKX join retail disruption, infrastructure, and pet care ETFs at ProShares. “Over the past few years, we have grown our presence in the thematic ETF space, and we look forward to offering investors more innovative products in the future,” said Scott Helfstein, executive director of thematic investing at ProShares.
With the launch of these new funds, ETF Trends had the opportunity to ask a few questions to Scott Helfstein, executive director of thematic investing at ProShares. With regards to the trends seen in the market that helped lead to the creation of these funds, Helfstein states, “Consider the range of issues that companies have been dealing with over the past 12 or 18 months: supply chain challenges, social distanced and shorthanded staff, reliance on digital capabilities, and mounting concerns over peak profit margins. Identifying and leveraging operating efficiencies is critical for companies right now, and the new funds are focused on the way businesses operate and manufacture.”
“For example,” he continues, “The ProShares Big Data Refiners ETF focuses on the companies that turn the ever-increasing data stack into actionable insights to build better businesses and help identify the next pathway to higher profit margins.”
“The ProShares S&P Kensho Smart Factories ETF is the first fund centered on companies facilitating industrial automation powered by advances in areas like sensors, robotics, and control systems, which could prove especially critical as companies deal with concurrent pressures on supply chains and labor availability.”
“The ProShares S&P Kensho Cleantech ETF focuses on the companies developing technologies behind renewable energy sources like wind and solar garnering attention with the possibility of a green energy stimulus bill and more recently the volatility in energy commodities such natural gas prices that reflects the importance of diversifying the sources of production.”
When noting the areas of technology that play the most significant role in these funds, Helfstein notes, “Efficiency, efficiency, efficiency. That is the story here, different flavors, but the common thread is ways to achieve efficiencies. The types of software algorithms that drive big data refiners have network effects where the products get better with more data and clients at little incremental increase in costs. This is historically a profitable business model. Data is a critical element in smart factories as well, but the integration with physical assets like robots is also critical.”
Helfstein continues, “Costs of automating or adding robots have steadily decreased over time, and innovations like Collaborative robots or cobots that communicate to trade off tasks and work together represent the next frontier. The story behind cleantech is also about efficiency. New technologies that make solar capture more effective, allow wind turbines to operate with less friction, or facilitate fuel cell energy storage with more efficacy are imperative to the success of green power that is both good for the environment and potentially cheaper.”
Inflation and the Long-Term Effect
In discussing the prospect of impending inflation, Helfstein explains, “There are two ways to approach this question focusing on either the themes or economic rationale of growth investing. We can start with the themes.”
“Inflationary pressure often leads to higher energy costs, and that is on display now with recent run-ups in oil and natural gas. Cleantech should attract both investment and customer demand should the prices reach a point where renewable energy is more cost-effective as a substitute good. Higher inflation can mean higher labor costs (wages) and raw material prices. Companies will likely look to offset the pressure of rising prices with cost-reducing technologies like smart factories that reduce material waste and reliance on labor. Rising costs can put pressure on company profit margins, which is a concern in the markets now. Big data refiners can help companies looking to control rising costs may turn to increasingly big data refiners to help find ways of sustaining profitability, and the big data businesses themselves are classic scalable businesses that can add customers with modest cost increases.”
Helfstein continues, “Investors should generally be conscious of inflation, but the relationship between interest rates and growth equities is usually oversimplified. The typical line is that higher inflation leads to higher interest rates, and in turn, bad for stocks overall and growth stocks in particular. That argument focuses on borrowing and discount rates but ignores the other side of the coin, growth. Rates generally go down when growth slows and conversely rise when growth improves, and high-growth companies can be central in driving growth. Over the past 20 years, Nasdaq’s weekly returns are positively correlated with rising 10-year bond rates. This suggests that growth optimism may outweigh rate or inflationary fears. Also of note is that as much as real asset prices (like commodities) rise with inflation, so do corporate earnings. They are both nominal assets that can move in step with higher inflation. Higher rates do not necessarily warrant abandoning growth stocks. Long-term investors should focus on secular growth opportunities rather than transient cyclical factors.”
With regards to the long-term intentions with these ETFs, Helfstein explains, “These are not transient or meme themes. The investment thesis behind these funds is based on long-term trends grounded in technological and demographic changes. Automating manufacturing and industrial processes is an imperative, not an option. According to UN estimates, the four largest economies in the world, The US, China, Europe, and Japan, will have a shortage of 176 million workers by 2040 at current levels of labor utilization. The global market is projected to grow from $80 billion in 2021 to $135 billion in 2026, according to a 2021 MarketsandMarkets report. This is a meaningful long-term opportunity.”
“There are similarly strong long-term prospects for cleantech. The IEA forecasts that global energy needs will likely increase about 20% over the next decade and estimates that much of the incremental needs will be driven by renewable sources. Clean technology could be a catalyst for economic growth, driving $1-2 trillion of green infrastructure investments per year and creating 15-20 million jobs globally, according to a 2020 Goldman Sachs research report.”
“Just a few years ago, human society crossed into the zettabyte era, meaning we produce more than 1 trillion gigabytes of storable data in a year. The estimate for data produced in 2020 was 64 zettabytes, and data production has grown exponentially for decades. The data explosion is not stopping, but discerning useful insights is increasingly like finding a needle in a haystack. Except when analyzed properly, the needle may be made of platinum. The global big data analytics market has expanded quickly, reaching $208 billion in 2020. By 2026, it is projected to grow to $450 billion, according to a 2021 Expert Market Research Report.”
For more information, visit www.proshares.com.