Do These 'Work From Home' ETFs Work for Investors?

Increasingly, corporate Work From Home guidelines have been making headlines. In many cases, companies that we would have expected to be more accepting of this practice -- such as Apple and Tesla -- have turned out to be a lot more Economy 1.0 than we thought. While corporate excitement about Work From Home seems to be subsiding, there still are a lot more workers who are telecommuting (yes, I'm that old) in 2022 than there have ever been. Because of this, I thought I'd revisit two funds that launched in 2020, to see how they have been doing and explore their differences. The first fund, launched June 25, 2020, is the Direxion Work From Home ETF and the second is the iShares Virtual Work and Life Multisector ETF , which launched October 1, 2020. Both funds are priced similarly, with WFH at 45 basis points and IWFH at 47, meaning shareholders with $1,000 invested in WFH for a calendar year would expect to pay $4.50 over that period. It is interesting to me that the iShares product launched 98 days after the Direxion fund, especially since the minimum review period at the SEC for new funds is 75 days. What's that about the sincerest form of flattery? In any event, let's move on to the funds. WFH vs. IWFH WFH is clearly squared on Work From Home and IWFH has massaged the approach to incorporate the adoption of technology at both work and home. As you can see from the chart below, the added exposure of virtual life has taken its toll, with names like Netflix , Teladoc Health , down over 50% YTD to 6/22/2022, and Peloton and Snap down over 60% over the same period. WFH has had its own issues with some names such as Nutanix and Twilio down over 40% YTD and Ring Central down over 50% YTD. Source: FactSet/All You Can ETF WFH is a strategy that holds only U.S.-listed stocks while IWFH is a global fund with six of the ETF's top-10 contributors to return QTD to 6/22/2022 having primary shares listed in Hong Kong. While the comparison chart since inception shows a clear advantage to owning WFH, YTD return in the below table shows both funds almost equally significantly underperforming the broader U.S. market. Looking at QTD returns to 6/22/2022 shows IWFH down 21.81% as compared to WFH's 27.52% loss, both of which still pale in comparison to SPDR S&P 500 ETF Trust , which is down only 17.10% over the same period. Source: FactSet/All You Can ETF Both funds are passive, meaning they each track an index. WFH tracks the Solactive Remote Work Index and IWFH tracks the NYSE FactSet Global Virtual Work and Life Index. In reviewing the methodology for both the Solactive and NYSE indexes, we see that Solactive is employing a keyword search algorithm that scours available online media to make determinations about a company's suitability, while the NYSE relies on more traditional human-powered research provided by FactSet. Solactive doesn't seem to have any revenue tests in its selection criteria based on a word search for revenue in the methodology. The NYSE/FactSet methodology does at least mention revenue criteria but they are set at 50% and in some cases 25%. The good news here is that with such a targeted strategy it is often the case that companies with exposure are generally focused mainly on those activities although I'm not crazy about names like Avaya in both funds and Verint in IWFH. To be clear, the discussion of these funds is not meant to be a referendum on humans vs. machines when it comes to security selection. It's just how these index providers go about picking names. Taking It Home As different as both of these funds are the fact that their returns have converged over the past six months reinforces to me that correlations do trend to 1 in times of distress. My take is that while Work From Home is experiencing some growing pains, sticking with a strategy that leaves out consumer exposure is going to be beneficial for investors in the near term. I'm bullish on WFH if only because companies overall will be increasingly embracing this practice to reduce overhead costs. What this will lead to, from my perspective, is going to be a right-sizing of salaries depending on geography. I don't see this for every industry but for those companies that need to continually deliver shareholder value, it is going to be tempting at the very least.

Do These 'Work From Home' ETFs Work for Investors?

Let's compare WFH and IWFH, two funds launched in 2020.

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