Cave Dwelling

VanEck launches smart homes active ETF

The European subsidiary of VanEck is launching a transparent actively managed ETF that invests in global companies making homes “smart”.

The VanEck Vectors Smart Home Active UCITS ETF (CAVE) will be built in partnership with Dutch active manager Dasym, which will pick all the stocks. Reading through the prospectus, smart home companies are defined very broadly. They include the obvious WFH enablers like Zoom that have been boosted by the pandemic. But also those that provide home dining, video games, dating and socialising apps, home education and “infrastructure”. 

Companies will be picked based on traditional active strategies like bottom up and top-down analysis. A heavy emphasis will be placed on strong fundamentals, like free cash flow and return on equity and low debt.

CAVE will hold a portfolio of 40 – 60 stocks.  It charges 0.85%.

Bernie’s commentary – traditional active fund, will require performance

Reading the prospectus this fund is very much a traditional active fund in an ETF wrapper. The only added glosses are that the fees are a bit lower by active standards. And the fund has gone for full transparency, as is required in Europe (unlike the US and Australia). While this is standard for ETFs it remains irregular for active.

The willingness to go transparent I think will owe partly to the fact that the fund is focussing on large caps. (It’s the small cap stock pickers that fear the clear glass). But also to the success of Cathy Wood, who managed to outperform for years while running a fully transparent portfolio. Her success has raised fundamental questions about why large cap equity managers can’t just outperform transparently like she did. What do they have to hide?

If I had a criticism of CAVE it is that looking at the portfolio, it looks just a bit too familiar. The top holdings are all famous global technology companies. A tilt towards cloud computing is clearly the goal. (Top 10 holdings are below).

For my part at least, when looking at thematic ETFs, I like opening the portfolio and seeing companies I’ve never heard of. One of the understated benefits of thematic ETFs is that they give investors the chance to learn new things, and learn about new companies. (If you want the learn-nothing know-nothing approach, just buy the Vanguard S&P 500 ETF. There is no indignity in it). This can be especially useful for young people who have more time and are willing to take risks.

Does CAVE provide that educational journey? I’m not so sure. Then again, there is always room in the market for active managers that outperform. And for this fund, one suspects, it will come down to exactly that.