Direxion launches ‘Work From Home’ ETF

Jun 25th, 2020 | By | Category: Equities

Direxion has launched a new thematic equity ETF that seeks to capitalize on what is arguably the most pervasive and likely most enduring trend associated with the Covid-19 pandemic: the work-from-home movement.

Direxion launches ‘Work From Home’ thematic ETF

The Direxion Work From Home ETF provides exposure to companies that stand to benefit from more people working remotely.

The Direxion Work From Home ETF (WFH US) provides exposure to companies specializing in products and services that aid and facilitate the ability for employees to work remotely.

The fund, which has listed on NYSE Arca and comes with an expense ratio of 0.45%, is the first ETF globally to follow such a strategy.

Methodology

It is linked to the Solactive Remote Work Index which selects its constituents from a universe of US equities and American Depository Receipts with average daily trading volume greater than $5 million.

Selection is driven by Solactive’s proprietary Natural Language Processing engine called ARTIS (Algorithmic Theme Identification System) which provides potential constituents with a thematic score indicating how closely aligned the firm is to the underlying theme. ARTIS analyses large volumes of company reports, financial news, and business descriptions in calculating thematic scores.

The index comprises 40 securities, consisting of the ten stocks that are most aligned to each of the following four business fields: cloud technologies, cybersecurity, online project and document management, and remote communications.

Constituents are weighted equally in the index, thereby providing a tilt towards smaller-cap stocks compared to traditional technology indices. Reconstitution and rebalancing occur on a semi-annual basis with buffer rules helping to limit unnecessary turnover.

Permanent shift

While the adoption of work-from-home practices had been gaining traction in recent years, the trend has been accelerated – out of necessity – following the imposition of Covid-19 lockdown orders.

According to a recent survey of US-based employees conducted by CNBC/Change Research, 42% of respondents indicated they are working from home – a huge jump from only 9% who said they worked completely from home before the pandemic.

That trend is also expected to remain high as firms seek to keep overhead costs down. More than half (54%) of companies plan to make remote work a permanent option for suitable roles going forward, according to PwC’s Covid-19 CFO Pulse Survey.

Companies including Google, Microsoft, Morgan Stanley, JPMorgan, Capital One, Zillow, Slack, Amazon, PayPal, and Salesforce have all extended their work-from-home options.

“We’re witnessing the greatest acceleration in the shift to remote work than we’ve ever seen before.”

– David Mazza, Managing Director at Direxion.

Companies operating in the cloud computing, telecommuting, and cybersecurity sectors are all expected to emerge as winners from this work-from-home revolution.

Greatest acceleration

David Mazza, Managing Director at Direxion, said, “We’re witnessing the greatest acceleration in the shift to remote work than we’ve ever seen before. WFH meets the demand of investors looking to gain diversified exposure to firms providing the technologies helping to improve data security, facilitate on-demand access, enable virtual collaboration, and empower digital connectivity.”

He added, “Direxion is excited to partner with Solactive on the launch of the Solactive Remote Work Index. This is the first ETF tracking an index designed to provide investors with comprehensive exposure to firms at the forefront of the worldwide, societal transformation towards greater adoption of remote work.”

Timo Pfeiffer, Chief Markets Officer at Solactive, commented, “During the Covid crisis, I shared the same burden as many of you, which is trying to set up an office space at home that holds a candle to our regular office environment. Translating this issue to a global perspective, it’s obvious that companies actively engaging with the setup of the work from home evolution will be the beneficiaries.”

While the strategy undoubtedly sounds compelling and will likely appeal to advocates of a thematic investment approach, prospective investors are going to have to think about how this ETF fits in their portfolio if they already own cloud computing, cybersecurity, and/or technology ETFs. It may be the case that they already have this work-from-home exposure.

And then of course there are valuations to consider. Many of the constituents have already moved sharply higher in anticipation of Covid-19-related earnings gains. Top holding Twilio, for example, is up more than 200% from its March low point. Crowdstrike, another major holding, is up 220%. Both these stocks, incidentally, are significant holdings in well-known cloud and cybersecurity ETFs respectively, highlighting the potential for holdings overlap.

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