At VanEck we place great emphasis on the kind of companies that are included in our ETFs. For us, offering exposure to relevant players for the chosen topic/investment theme is very important and greatly contributes in determining the product’s quality.
What is It Meant by Pure-Play Approach?
A pure-play ETF is an ETF that invests in companies highly relevant and involved in the selected investment theme. An effective way to measure this is by analyzing revenues. In order to be eligible for inclusion in our pure-play ETFs, companies need to derive at least 50% of revenues from the selected topic. Only in some cases, for example with themes like uranium, an exception can be made and the revenues threshold be temporarily lowered to 25%: in this case strong potential to derive a substantial portion of revenues from the theme needs to be displayed.
What Are the Advantages of a Pure-Play ETF?
By opting for a pure-play investment approach, investors can get direct exposure to companies active in the theme and therefore are more likely to benefit from its potential growth. If a thematic product doesn’t incorporate pure-play features then investors need to be very careful in analyzing and determining whether the company selection is appropriate.
What Are the Disadvantages of a Pure-Play ETF
A potential shortcoming of a pure-play ETF is that by including only companies who derive a significant portion of revenues from the theme, the universe gets reduced. Accordingly, diversification could be lower than with a non-pure-play ETF. Moreover, another headwind could be the reduced liquidity that might come with these pure-play companies.
Example of a pure-play ETF: VanEck Crypto and Blockchain Innovators UCITS ETF
In order to be eligible for inclusion in this ETF, companies need to derive at least 50% of revenues from the digital assets ecosystem. The product enables an investment in crypto exchanges, payment gateways and mining firms, just to mention a few. Especially for a theme like digital assets it would be easy to include companies which, as of now, are not truly involved in the topic but only display the potential to derive revenues in the future from this area. With a pure-play approach the focus lies on companies already at the center of the digital assets ecosystem.