Turbulence for a Drone-Tied ETF -- Journal Report

By Gerrard Cowan 

Drones have gotten some bad press lately. But they still offer something for investors to get excited about, according to the team behind ETFMG Drone Economy Strategy ETF (IFLY).

In December, the technology was in the headlines when suspected drone sightings grounded flights at Gatwick Airport in the U.K. While such incidents paint the industry in a bad light, the broader story is more positive, says Robert Saffer, global head of ETF sales at ETFMG. Drones are being used in areas from emergency services to the military, and giants such as Amazon.com Inc. and FedEx Corp. plan to use the systems for deliveries.

"We're talking about a long-term growth segment," he says.

IFLY tracks an index of global companies with exposure to the drone industry, such as AeroVironment Inc., Boeing Co. and Parrot SA. Because IFLY invests in companies in the broader drone ecosystem, it also could benefit from increased interest in counter-drone technologies, driven by incidents such as the one at Gatwick, Mr. Saffer says.

The $39.3 million fund is up 11.4% this year through January. However, it took a beating at the end of 2018, says ETFdb.com analyst Kiril Nikolaev, falling more than 20% from September through December. It has underperformed the broader market, and the industrials and technology sectors as a whole, both during the fourth quarter and since its March 2016 launch, he says.

Mr. Saffer says many of IFLY's investments are concentrated on smaller companies, which were particularly hard hit by last year's market turmoil. This performance doesn't reflect the growth prospects of the industry, he says.

"These companies continue to invest in their technology, and this will be reflected over time in their profitability," he says.

Mr. Cowan is a writer in Northern Ireland. He can be reached at [e-mail].

(END) Dow Jones Newswires

February 03, 2019 22:17 ET (03:17 GMT)

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