LGIM expands thematic suite with three ‘disruptive technology’ ETFs

Jul 2nd, 2019 | By | Category: Equities

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Legal & General Investment Management (LGIM) has expanded its range of thematic equity ETFs with the launch of three new ‘disruptive technology’ funds designed to capitalise on investment opportunities in artificial intelligence, healthcare and clean water.

Howie Li, Head of ETFs at LGIM

Howie Li, Head of ETFs at LGIM.

They are the L&G Artificial Intelligence UCITS ETF (AIAI LN), the L&G Healthcare Breakthrough UCITS ETF (DOCT LN), and the L&G Clean Water UCITS ETF (GLUG LN).

The funds have been listed on the London Stock Exchange and are competively priced with total expense ratios of 0.49%.

Howie Li, Head of ETFs at LGIM, commented, “All sectors and businesses are being transformed by disruptive technology and we’re seeing increasing demand from investors looking to access these themes in a cost-efficient way.

“These new funds offer investors the opportunity to hold companies directly benefiting from these themes, with bespoke indices constructed around active selection and research and implemented in a systematic and rules-based way.”

The funds build on LGIM’s existing thematic line-up which is led by the L&G Cyber Security UCITS ETF and the L&G ROBO Global Robotics and Automation UCITS ETF – both $900m+ funds.

In a bid to deliver targeted, pure-play exposure to the themes, LGIM has engaged industry specialists ROBO Global and Global Water Intelligence to provide unique industry insight and fundamental research across the full value chain of the AI and healthcare, and water themes, respectively.

Artificial Intelligence and Healthcare Breakthrough

The L&G Artificial Intelligence UCITS ETF and L&G Healthcare Breakthrough UCITS ETF are linked to the ROBO Global Artificial Technology Index and ROBO Global Healthcare Technology and Innovation Index, respectively. The indices have been created by ROBO Global, the advisory and indexing firm behind LGIM’s robotics ETF, and are maintained by Solactive.

Each index selects its constituents from a universe of developed and emerging market stocks that have market capitalizations greater than $200 million and three-month average daily trading values of at least $1m.

The indices then use ROBO Global’s industry classification system to identify companies with operations in sub-sectors linked to AI or healthcare technology.

There are eleven relevant sub-sectors for AI: business process; consulting services; big data analytics; cloud providers; network security; cognitive computing; e-commerce; healthcare; factory automation; semiconductor; and consumer.

For healthcare innovators, the eight key sub-sectors are diagnostic; lap process automation; regenerative medicine; precision medicine; data and analytics; telehealth; robotics; and medical instruments.

Each eligible company is individually analyzed and assigned a score between 1 and 100 based on factors such as the proportion of revenue attributable to relevant subsectors, the level of investment made into AI or healthcare technologies, and the firm’s leadership position within its market.

The index methodology then selects the highest-scoring companies with scores above 50, up to a maximum of 100 stocks. If fewer than 50 stocks have scores above 50, the index selects the highest-scoring companies until 50 constituents have been chosen.

Constituents are weighted according to their scores so as to heighten exposure to the underlying theme. Each index is reconstituted and rebalanced on a quarterly basis.

Clean Water

The L&G Clean Water UCITS ETF tracks the Solactive Clean Water Index, designed by Solactive and based on research from Global Water Intelligence.

The index methodology starts with the same selection universe as the AI and healthcare indices but focuses on companies integral to the world’s management of water, including those engaged in water production, processing, and the provision of related services.

The methodology selects companies classified as “Utilities” with at least 90% “water revenue” share – revenue derived from products and services related to the water industry. The index also selects “Engineering” companies with at least 50% water revenue share and technology companies with a minimum 5% water revenue share.

Constituents are equally weighted in the index subject to certain the constraints that cap the maximum weight of stocks that do not meet certain liquidity thresholds. Caps of 1%, 2%, and 3% are applied to stocks with three-month daily trading values below $2m, $3m, and $4m respectively.

“Our new Solactive Clean Water Index is a suitable way for investors to invest into a pre-defined equity basket of companies actively engaged in the prevention of a significant global threat,” said Timo Pfeiffer, Head of Research at Solactive. “We are truly fortunate to work with LGIM on this vital topic to assure investors a reliable and direct opportunity to drive positive change.”

Li added, “We have seen an increasing client demand for funds that offer investors access to new themes in a cost-efficient manner. The L&G Clean Water UCITS ETF will help capture the investment opportunities created by innovations in the clean water sector. We are delighted to be working closely with Solactive, who have a market-leading capability in index innovation. This unique index is constructed around active research and will be implemented in a systematic rules-based way, providing investors with access to pioneering companies that are creating solutions to longstanding challenges.”

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