HANetf (LSE:ZERO) co-founder and co-CEO Hector McNeil talked with Proactive about the recent developments in the group’s exchange-traded products (ETPs).
McNeil discussed the Royal Mint's e-waste recycling initiative and its impact on the Royal Mint Gold ETF (RMAU), which is now backed by over 50% recycled gold.
He also highlighted the performance of HANetf (LSE:ZERO)'s Tech Megatrend UCITS ETF, which utilises a unique double equal-weighting strategy, reducing concentration risk and offering broad exposure to megatrends like robotics, big data, and cloud computing.
Proactive: Lots of recent news out that highlights the potential of your exchange-traded products. So maybe start with the news that the Royal Mint is starting a new e-waste recycling business.
Hector McNeil: The Royal Mint has a very broad, sustainable remit in its business. It's 100% owned by the UK Treasury, of course. It's a largely woman-led board, and it's attempting to be sustainable from an energy perspective. They have their own wind and solar power generation. So, they have around a 50-acre site, essentially a sort of high-tech factory.
Recently, they've had a stated aim to try to use as much recycled gold and precious metals as possible in their production of coins and jewellery. In fact, they launched a whole range of jewellery called 886, which is actually the date that the Royal Mint was incorporated by Alfred the Great.
So the brand is 886, and it's fully recycled precious metals. They had a state intention of creating an e-waste business to mine mobile phones, circuit boards, etc., which are packed full of precious metals and then reuse those. The rationale really is that those metals are highly valuable, but also the carbon footprint of recycled gold tends to be about 95% less carbon intensive than mined gold.
So it's very focused on a sustainable world. And then, what we've done with the Royal Mint is the Royal Mint Gold ETF (RMAU) is physically backed with responsibly sourced gold, which is 100% backed by gold delivery bars under the LBMA standard that meet the post-2019 responsible sourcing standards. These standards cover UN goals, anti-slavery, responsible mining, and suchlike.
Over 50% of the bars are from recycled sources. We take recycled gold, fully verify where it comes from, turn it into good delivery bars, and send it to be refined. That's what backs RMAU. Currently, about 54% is from recycled gold, with a target of around 50%.
Proactive: Well, maybe moving on to another of your ETFs, and this has kind of come into its own: the Tech Megatrend UCITS ETF. It is an equal-weighted ETF, and with the recent volatility in markets, particularly for the big seven, the Magnificent Seven tech stocks, it really shows the power of equal-weighted ETFs.
Hector McNeil: What's nice about the markets at the moment is that everybody's been waiting for that inflection point when you need to broaden out past that sort of concentration risk in the Mag seven. I often say companies like Amazon are like ETFs themselves because they have hundreds of thousands of companies underneath them. But you've got to have a concentration risk. So if you buy something like the NASDAQ 100, you're probably buying 60% exposure to about seven stocks, maybe even more sometimes. But with something like the ITEK fund, you're actually getting exposure to an equal-weighting process. So you're a lot more diversified and less exposed. In that product, I think there are about 120 stocks. The Mag seven has probably less than 5% of the exposure in the whole thing, and the largest stock is probably about 2 to 3%.
But what's unique is that the equal weights are across the actual megatrends themselves. It covers robotics, automation, cloud computing, big data, cybersecurity, future cars, genomics, social media, blockchain, and digital entertainment. It equal weights across those megatrends at the rebalance, and then underneath that, it equal weights the securities underneath. So it's almost a unique double equal-weighting.
We're seeing quite a few clients moving into that from the sort of market capitalisation funds. The NASDAQ 100, S&P technology, and other exposures are shifting into this broader play. I'm seeing investors at the moment keeping a core in the NASDAQ 100 exposure but maybe taking 25% off the table and putting it into something like ITEK, which is pretty unique from that perspective. So it's a really interesting trade at the moment, Stephen.
Proactive: We've had Ukraine turning the tables a little bit and invading Russia. I suppose this is where your Future of Defense ETF (NATO) comes into play.
Hector McNeil: Yeah, I mean, how incredible is that? I think we all woke up with complete surprise, and whether the NATO members are to be believed — particularly the UK, European countries, and the US — that they didn't see this coming, I'm not quite sure I buy that. But to see British Challenger tanks going into Russia and making massive gains is really interesting. I think it completely outlines the strategy around hopefully seeing a truce and a peace process. It becomes part of the bargaining chips for Ukraine to say, "Well, actually, if you want to hang on to the Donbas, we have this land, let's have a trade-off." It massively improves the hand that Ukraine will have in those discussions.
Let's be frank, it's a massive embarrassment to Putin and his cronies to see how easily that invasion is happening and how they are holding the land. You would expect them to be absolutely obliterated by now if Russia had any cohesive military in place. That's really quite important, and that goes hand in hand with the support that the West is giving and the military that is buying. We're seeing the F-16s arrive there now. We've got the Challenger tanks there. Rheinmetall has a plant there that's repairing the Leopard tanks, and they're talking about having an actual production facility in Ukraine.
What's amazing is seeing the news where they uncovered the plot to murder the CEO of Rheinmetall by the Russians. We're seeing expenditure massively ramped up in the NATO countries, to the point where I think 23 out of 32 are now meeting the 2% plus targets on GDP. Sweden and Finland are already at nearly 3% each, and it's only going one way. What's been really interesting is that while you see the collapse of Russian military exports, you've seen France move up to number two in the table for military exports.
That's why NATO is quite unique because it only includes companies in NATO countries or NATO affiliates. It's got that sort of defensive alliance. I call it almost like a soft ESG screen to say, "Well, you're not going to be getting involved in potentially offensive military campaigns," which is what you're seeing with the threats of Russia and China. Even those middle-ground countries like India won't be included in the NATO product. It also got voted the best ticker in the world last year.
NATO is just shy of 500 million in assets now, and it's probably been one of our most successful asset gatherers in the last couple of months. The performance actually hit an all-time high. I think it's around £10 a share now, so still some value there. But it's at an all-time high, so I think that just reflects that whole story. You know what I always say to people as well, things like gold, Bitcoin, defence stocks- you can't really ignore that in today's world, right? You've got to have that to protect against these sorts of geopolitical events, but the returns coming in from those spaces are really significant. For those who want to drill down a little bit more, there are some ESG screens around and policies that sit inside that ETF. It's a very sensitive area, but we've tried to create as curated a response to that as we possibly can.