Last week saw the launch of a new ETF from a new ETF provider. Defiance ETFs’ Defiance Future Tech ETF is based on the BlueStar Augmented and Virtual Reality Index (BAUGR).
BlueStar is best known for its Israeli indices but Steven Schoenfeld (pictured), founder and chief investment officer of BlueStar Indexes and Joshua Kaplan, the Director of Research and Finance at BlueStar Indexes, explain that this is the first not to hold an Israeli stock at the moment.
The BlueStar Augmented and Virtual Reality Index (BAUGR), is global in nature and includes approximately 60 stocks across all market capitalisations. Current country allocations include the United States, France, Japan and Korea. The index is equal weighted, offering investors more targeted exposure, including to smaller companies with higher growth potential.
Kaplan says: “Late last year we started developing thematic indexes and we had done industry level research over a long period of time to study macro trends and internally a lot of research on artificial intelligence (AI).
“It’s really important to understand the difference between the machine learning process, facilitated by companies like Nvidia and what we refer to as Applied AI which is what type of applications, services and products can companies now offer to business and consumer clients that harness the output of machine learning, that increases productivity and makes people s lives more interesting.”
Augmented and virtual reality is one type of Applied AI, Kaplan says, which will have wide reaching effects across industries and consumer products.
Schoenfeld explains that the impetus for the research into disruptive technology themes was because many Israeli companies are in the space and the firm was asked by an Israeli client for tech themed indexes.
Kaplan says that in focusing on virtual and augmented reality, it is as if they are slicing the cake even further, but because machine learning and Applied AI are foundational technologies, there are sub segments even of these segments.
“When we construct a thematic index like this the first step is to learn what are the specific technologies that are required to offer augmented reality products. Which companies are offering or developing this technology in house or have hardware related to this theme such as headsets. So, we include companies that are offering headsets that are being used for augmented and virtual experiences.
“Glass companies that are participating in launching new form factors for the way people interact with technology, or chip manufacturers offering motion or depth perception sensors enables an engineer using an augmented reality headset and software to map out a product. These types of sensors will be able to tell the augmented reality system how far the user is from a given object or how far objects are from each other using laser measurement devices.
“We look for the specific technologies that enable the underlying themes ,” Kaplan says.
“Virtual reality is meant to put the user in a different world while augmented reality is adding a digital experience overlay to the actual world around you.”
Schoenfeld cites another example of augmented reality as that which is now within most advanced military aircraft helmets. “They are looking at the reality of the battlespace beyond the cockpit, and Augmented Reality technology lets them see further.”
Kaplan says: “There is a lot of research out there and articles written in trade publications that augmented and virtual reality is a fad. Perhaps it was still a fad when Google launched Google glasses but now the quality of the machine learning that supports these applications is there – they are still perfecting the technology but we are going to see it as a pervasive technology through all aspects of our lives from gaming to engineering and in home assistants.
“That is very popular at the moment and trendy and my guess is that Amazon and Google haven’t yet put their best technology into it yet. They are gathering data for their next iteration which will be heavily dependent on augmented reality.”
Schoenfeld says: “We believe that we are building a coherent set of thematic indices and we are committed to this space to help investors understand where the borderlines between different technology themes lie.”
“It’s a major undertaking to draw those lines and only a research-driven process can draw those lines ultimately,” Kaplan says. “It’s the underlying research that defines which technology is relevant and most important to each theme.”
Schoenfeld says: “We are broadening our focus developed by our deep knowledge of Israel’s tech ecosystem, so we now have unique insights into cutting edge and disruptive technology and applying it across global equities. There already six technology themed index-tracking products based on our indices in Israel so we are excited that the first US ETF tracking a BlueStar Index is now launched. We look forward to extending our dialogue to include innovative ETF issuers in Europe and Asia.”
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