A New Disruptive-Tech ETF Is Big on Augmented and Virtual Reality

The latest ETF to join the disruptive-tech party focuses on augmented and virtual reality. The Defiance Future Tech ETF (AUGR), which started trading last week, holds 58 stocks including gaming companies like Nintendo (7974.Japan), chip makers such as Qualcomm (QCOM), and social-media firms, including Facebook (FB) and Snap (SNAP). Stocks are equally weighted, giving small caps as much sway as tech giants. The ETF has $2.5 million in assets and charges an annual expense ratio of 0.65%.

Augmented reality is a catchphrase for any technology that enhances the real world with digital content or imagery. Facebook, for instance, aims to implement AR in ads, enabling consumers to see how they’d look in a pair of Michael Kors sunglasses before making a purchase. Facebook is also in the virtual reality space with its Oculus goggles—a $199 headset that creates an immersive experience in video games, movies, and other digital worlds.

ETFs are a blunt instrument to gain exposure to emerging technologies. Mattel (MAT) and Hasbro (HAS) are in the Future Tech ETF, even though they primarily sell dolls and other analog toys. Tech giants in the fund include Apple (AAPL), Hewlett Packard Enterprise (HPE), IBM (IBM), and Samsung Electronics (005930.S Korea). These firms are developing AR and VR technology or slowly implementing it, but they still make most of their money off other products or services.

Matthew Bielski, 34, CEO of Defiance ETFs, says the idea is to target technologies that millennials are familiar with and want in their portfolios. “If you ask my father about technology, he’ll talk about apps and computers. If you ask a millennial, it’s about disruptive technologies like blockchain, cloud computing, and cryptocurrencies.” Broad tech ETFs like Invesco QQQ Trust (QQQ) don’t provide targeted exposure to these tech-trends, he says.

Of course, millennials want to make money, just like their old-tech-focused dads, and it’s unclear if disruptive-tech ETFs will be the ticket. High fees won’t make it easy—most of these funds have annual fees of more than 0.6%.

Perhaps even more to the point: There’s a big disconnect between stock performance and innovative technology. The Global X Robotics & Artificial Intelligence ETF is down 6.6% this year. Amplify Transformational Data Sharing ETF has been flat since launching in mid-January, compared to a 2.8% return, including dividends, for the S&P 500, according to FactSet Research.

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