Purpose Investments launches Europe’s first enterprise software ETF

Jul 30th, 2021 | By | Category: Equities

Toronto-headquartered Purpose Investments has launched a new ETF in Europe providing exposure to US enterprise software companies.

Som Seif, CEO of Purpose Investments.

Som Seif, CEO of Purpose Investments.

The Purpose Enterprise Software ESG-S UCITS ETF has been listed on the London Stock Exchange (SOFT LN) and is set to cross-list on Xetra (SOFT GY) on Tuesday.

It comes with an expense ratio of 0.59%.

The fund has been brought to market in collaboration with London-based white-label ETF provider HANetf which is overseeing marketing and distribution responsibilities.

Investment case

According to market research firm Grand View Research, the global enterprise software market was valued at around $390 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 11.3% from 2021 to 2028.

Growth is being driven by the increased adoption of business process automation and the accelerating digital revolution with its attendant explosion of data in terms of variety, volume, and velocity.

Automation and data create huge opportunities for businesses to identify and capitalise on trends, fine-tune marketing and sales, allocate resources more efficiently and reduce inventory costs, and ultimately improve business decision-making and achieve enhanced profitability.

But underpinning it all is software. Software provides the instructions to make things happen, which is why the industry stands to benefit so much.

Index methodology

The fund tracks the Solactive Purpose Enterprise Software ESG Screened Index which selects its constituents from a universe of US-listed securities with market capitalizations above $500 million and average daily trading volumes greater than $1m.

Security selection is driven by ARTIS, index provider Solactive’s proprietary natural language processing algorithm, which identifies firms linked to a specific theme by screening for related keywords in a company’s publicly available documents.

With reference to the enterprise software theme, ARTIS identifies companies with business operations linked to software as a service, information technology services, server management and data warehouses, communications software, software services for data recovery, training and documentation, application software and commerce ecosystems, and web applications such as social media platforms.

The methodology focuses on high-growth companies by screening for firms with average revenue growth over the last three years of at least 15% and a combined sum of revenue growth and EBITDA margin of at least 20%.

A final screen removes any potential companies that might be violators of UN Global Compact principles or have business operations linked to controversial weapons, oil sands, or fossil fuels.

The index selects up to a maximum of 75 stocks from this remaining universe, choosing the companies that exhibit the highest combined sum of revenue growth and EBITDA margin.

Constituents are weighted by market capitalization subject to a single stock cap of 6%. Reconstitution and rebalancing occur on a semi-annual basis.

As of 29 July, the index contained 54 constituents and include many names familiar to tech investors such as Adobe (7.2%), Shopify (6.8%), Salesforce.com (6.3%), and Twitter (2.9%).

‘Forefront of digital revolution’

Som Seif, Founder and CEO of Purpose Investments, said: “The software industry plays an important role in our everyday lives, from business support to photo editing, and has long been at the crux of commercial enterprise. As the global economy continues to recover, the Purpose Enterprise Software ESG-S UCITS ETF will provide investors with exposure to the varied, and ESG screened, selection of companies at the forefront of the digital revolution.”

Hector McNeil, co-Founder and co-CEO at HANetf, added: “A big part of our strategy at HANetf has been to offer investors exposures to structural shifts within the world economy. The software industry has played a huge role in the digital revolution and has only come further into focus following the events of 2020, where efficiency within the workplace, both at the office and at home, became of paramount importance. We’re delighted to work alongside Purpose Investments once again with the launch of Purpose Enterprise Software ESG-S UCITS ETF and provide investors with an efficient structure with which to capture this trend.”

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