ETF Edge

ETFs tracking the work-from-home boom: Just a fad or here to stay?

Work-from-home ETFs: Just a fad or here to stay?

Thanks to a swelling resurgence in coronavirus cases, the vast majority of Americans are still being forced to work from home and will likely continue doing so for the foreseeable future. So, it was only a matter of time before issuers started orchestrating work-from-home plays in the form of ETFs.

Just two weeks ago, Direxion launched the world's first work from home ETF (ticker: WFH) — comprised of companies ranging from software, cloud computing and cybersecurity to online videoconferencing and project management. The fund highlights names like Twilio, CrowdStrike and Zoom Video — all companies at the forefront of the global shift to remote productivity. But the fund also offers exposure to names like Amazon, Facebook, Microsoft, IBM and Google parent Alphabet.

BlackRock, the world's largest asset manager, has followed up with its own iShares Virtual Work and Life Multisector ETF — though has yet to disclose any holdings. The BlackRock ETF has been filed with the SEC for approval but hasn't launched. According to the SEC filing, the fund will seek to track the investment results of an index composed of U.S. and non-U.S. companies that "provide products, services and technologies that empower individuals to work remotely, and support an increasingly virtual way of life across entertainment, wellness and learning."

It's safe to say the work-from-home theme draws on similar demand for popular stay-at-home trends like streaming, e-commerce, gaming and sports betting — as shown by the recent launch of the Roundhill Sports Betting and iGaming ETF (ticker: BETZ) – and the outperformance of funds like the VanEck Video Gaming and eSports ETF (ticker: ESPO) and the Amplify Online Retail ETF (ticker: IBUY) — both up roughly 40% so far this year.

Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, said it should come as no surprise that thematic investing is gaining traction again.

"This time, there's actually a rotation from individual stock selection and trying to pick a long-term theme and getting the benefits of diversification from ETFs," he said last week on CNBC's "ETF Edge."

He pointed to Direxion's new launch as an example — saying investors can gain exposure not only to established growth tech titans like Amazon and Alphabet, but also to more targeted companies specifically tied to the work-from-home culture.

Direxion Work From Home ETF (WFH) Top 10 Holdings (% weighting)
Elastic NV3%
Zoom Video3%
Ping Identity Holdings3%

With more asset managers flocking to opportunities created by the pandemic, Rosenbluth expects to see many more players in the work-from-home space.

He mentioned investors are also looking to products like the newly minted ETFMG Treatments, Testing and Advancements ETF (ticker: GERM), which tracks biotechnology companies engaged in testing and treating infectious diseases.

"We're going to see more of these thematic-oriented ETFs in response to the current environment," Rosenbluth said. "And I think all investors benefit from these choices."

Bryon Lake, head of Americas ETF distribution at J.P. Morgan Asset Management, agreed — saying such themes speak to the overall flexibility of the ETF wrapper.

"Of course, you're going to see a lot of the same names keep bubbling back up," he said in the same "ETF Edge" segment  — referring to mega-cap tech titans like Amazon, Apple and Netflix. "But [regardless of] whether that's quality or whether that's a thematic work-from-home play, what we do know is that investors like to own what they know."

As for whether he sees this as a lasting investing trend, Lake said that remains to be seen.

"I think that ties into this whole theme of winners and losers coming out of this crisis," he said. "And some of those work-from-home companies may benefit over the long term, just given the structural shifts that we're seeing."