Weathering the Storm with ProcureAM's Andrew Chanin - 7investing

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Weathering the Storm with ProcureAM’s Andrew Chanin

On today's 7investing podcast, 7investing CEO Simon Erickson chats with Andrew Chanin, the co-founder and CEO of Procure Asset Management to discuss Procure AM's new Disaster Recovery Strategy ETF.

August 16, 2022

– By Simon Erickson

From floods in Kentucky to fires in California to hurricanes in Texas, there’s never a shortage of natural disasters wreaking havoc on our country.

Over the past 42 years, the US government has spent $2.2 trillion in total to support the relief efforts of natural disasters. However, due to the economic toll that disasters take on the regions affected, that amount is likely far too little. And rather than just spending in response to weather-related events that have already happened, there is a more focused effort on proactive spending, to ensure power and resources are available in the case of a future disaster. In May, the White House issued a statement that it could spend an additional $25 billion to $128 billion each year on Federally-funded relief efforts that would minimize the disruption to the population and the economy.

Anyone who’s been through a FEMA-declared disaster area knows how serious these problems can be. There needs to be support for the companies who are there to help.

Yet interestingly, there has never been a way to invest in a basket of these disaster-relief companies. Shouldn’t there be a fund that supports these businesses?

Now, there is. In today’s 7investing podcast, 7investing CEO Simon Erickson chats with Andrew Chanin, the co-founder and CEO of Procure Asset Management. Procure AM has created the Disaster Recovery Strategy ETF. With ticker “FEMA”, it is the world’s first disaster-relief themed ETF.

In the conversation, Andrew describes what led him to create the fund and how it is different than existing climate change funds. He looks for companies under contract with government organizations

Publicly-traded companies mentioned in this interview include Clean Harbors, Generac Holdings, Home Depot, Lowe’s, Maxar and Tetra Tech. 7investing’s advisors or its guests may have positions in the companies mentioned.

Transcript

Simon Erickson  00:00

Hello, everyone, and welcome to today’s edition of our 7investing podcast where it’s our mission to empower you to invest in your future. I’m 7investing founder and CEO Simon Erickson. I’m glad to welcome back one of our returning guests. Andrew Chanin is the co founder and CEO of Procure Asset Management. Andrew, it’s always a pleasure having you on the show. I’d love to check in with you on a couple of new things that you’re working on these days.

 

Andrew Chanin  00:20

I’m thrilled to be back. Thanks for having me.

 

Simon Erickson  00:22

Andrew, you have just released a new ETF. It’s called the procured disaster recovery strategy ETF ticker on that as FEMA, tell us a little bit about this, and what led you to to launch this in the first place?

 

Andrew Chanin  00:35

Thank you for that introduction. So natural disasters are something that have been occurring since before humanity existed. And what we’ve seen are that there are many different trends over recent years that have showed that natural disasters are becoming more frequent, more devastating, and more costly. Fortunately, we’ve also noticed that there have been fewer fatalities from natural disasters. And one of those reasons is because we’re doing more to educate people to work with preparedness, and we have better tools for the recovery efforts from these natural disasters.

But this was an area that has been pretty close to me for years. You know, I went to school down in New Orleans at Tulane University was my junior year when Hurricane Katrina struck the city and the Gulf region. I was living in New York City when Hurricane Sandy hit, and you know natural disasters seem to be something that continue no matter where you are in the world. Natural disasters are a global phenomenon. And to me, it was always something that I was interested in finding a way to compile the companies, or many of the companies that are helping in the various areas of natural disaster life cycles. So you have the you know, the very earliest stages, before you even know a specific natural disaster is coming, you have the ability to build certain things into your ecosystem, whether that’s infrastructure, technology, you know, figuring out how to protect the resources that you have from potential future natural disasters, then you have a natural disaster looks like it’s about to be forming, whether it’s in the ocean, or a volcano or whatnot. And there’s monitoring systems that help us track weather patterns and changes of storms and things like this — to the Hey, it’s coming time to get prepared, go to your store and buy plywood and things like that, that you need for preparation to Okay, the natural disasters here, it’s now past us, how do we rebuild.

And so for us, it was a long term project that we have been working on to work with index providers and people knowledgeable of the natural disaster industry to build an index that could comprise be comprised of many of these companies that aid in all different aspects of natural disasters. And it was really seeing the rise and increase of damages financially, to communities that made us realize that, you know, unfortunately, whether we like it or not, natural disasters appear to be a significant growth industry. And people looking to have exposure to these companies that are helping us protect or rebuild from these devastating events could be things that others beyond myself might be interested in having exposure to.

 

Simon Erickson  03:31

It’s very true. And it’s something near and dear to my heart as well. You know, growing up as a kid in New Orleans and then now living here in Houston; we’ve seen our share of hurricanes over the years as well.

I wanted to go kind of bigger picture and maybe look at a little bit of you know, the government’s involvement in this. Obviously, you know, with FEMA and funds and disaster recovery, there’s there’s some relief efforts for that kind of thing. But then the US has also kind of the bigger picture very interested in climate change, and has got some some policy and stuff around that too. Where do you draw the line on what’s what’s in the fund? You know, do you go more for kind of the response to disasters? Are you kind of looking bigger picture about things like solar, renewable energy, climate change? And then also kind of what’s your perspective on, you know, where the revenues are coming from and how the United States would be involved with this?

 

Andrew Chanin  04:14

Yes, that’s that’s a loaded question. Let’s unpack it. No, absolutely. There are many different ways that companies are able to get involved and help us with this significant global challenge of, of mitigating and recovering from natural disasters.

So one area that does provide natural disaster assistance in various forms, but was excluded from the index due to just significant diversification beyond these, just the these areas, was defense companies. So a lot of aerospace and defense companies, they do a lot of things. Much of it not necessarily related to natural disasters, but those companies were removed. You know, Another area that when you think of say a climate change fund, or something of the likes of renewable energy tends to be one of these significantly overweighted areas, and there have been renewable energy there have been solar or wind energy ETFs out for well over a decade. And to us, you know, whenever we try to create a new ETF, we will also not just want to have a new theme that we tackle, but are we really providing new exposures for investors. And if you’re getting the same companies, regardless of if you’re in a broad based tech fund, or a a US growth fund, or disaster recovery fund, and you’re running all the same names, you’re not really providing anything new for investors, you’re just overlapping the same exposures that they may already have, in many cases. So we didn’t want this to be just another Renewable Energy Fund, someone that’s looking for, you know, low emission, low carbon, carbon credit, renewable energy. Yeah, that’s not the focus of this bond.

And you’re not going to find many of those same overlap accompanies this approach is really looking at natural disasters and saying, Okay, well, if everything that we do to try to curb emissions and to fight climate change, by being good stewards, and good corporate governance, and making sure environmentally sound and whatnot, that may fail, and natural disasters have been here before the ESG craze began, and it will be here for as long as Earth is likely here. So what are these other areas that are extremely critical that people are missing. And so you look at the composition of FEMA, and you see consulting and engineering and construction firms, you do need power in mobile and remote power sources, when you have events like the Texas freeze that probably affected you, and many people that you know, two winters ago, where the entire energy grid essentially went down, because the temperatures were too cold for too long in Texas, and what was one of the most in demand companies during that time?

Generac” (NYSE: GNRC). Exactly.

A holding and FEMA and so when you have natural disasters before, during and after, if you have the ability to still maintain power, whether you’re a municipality, whether you’re a corporation, or you’re just an individual trying to get by and survive while you’re staying at home generators are extremely important. So energy is kind of covered somewhat by looking at these mobile. You know, energy sources, like generators coming from firms like generating your water in waste is something that’s extremely dangerous and important to consider when you have natural disasters. So a company like Clean Harbors (NYSE: CLH), is extremely important with the removal of toxic and hazardous waste that you may see, say, after a hurricane or flood, when all of a sudden all this debris and potentially chemicals are now washed up ashore right down your Street. How do you get this out of your area and bring things back to normal? When you think about dredging, you can look at a company like Green Lake dredging docks. And after Hurricane Sandy, they help rebuild the double digit miles of coastline for New Jersey, after the Horizon oil spill in the Gulf, something also close to you. They also helped build up the sand levels so that you wouldn’t have as much toxic chemicals and oil washing up ashore on the Gulf Coast.

So there are many different things and aspects and companies that are involved in the various lifecycle. A really interesting area that we’re seeing is that governments are starting to proactively decide, hey, we need to spend because spending now on prevention might save us money down the road for recovery. And so areas that are in high risk for natural disasters, like coastal areas, you know, flood areas, earthquake and hurricane areas, you’re seeing significant spending going in to make sure that we can weather the storms better. And so you’ll see really interesting companies on that consulting construction engineering side that also have a major part in this fund. And it’s not just governments that spend money or corporations that spend money. There’s a significant consumer aspect to this. So when you hear a hurricane is coming to Texas and you live on the coast, what do you do, you probably go to a Home Depot (NYSE: HD) or Lowe’s (NYSE: LOW) and you go and you start buying plywood so that you can cover your windows and after that storm has receded and you’re trying to get back to your way of life, you might realize that you need paint, you might realize that you need tiles and flooring or roofing or many other things to repair your home. And so there is a decent size of consumer discretionary looking at these types of home goods stores as well that people tend to go to and I think it’s important to note that we were talking about how you’re the US has done so much.

When you look at spending roughly 30% of natural disaster recovery spending is coming from the United States. But natural disasters are a global phenomenon, roughly 90, something percent of your seismic activity comes from the Ring of Fire area. So you have different pockets that might be higher likelihood of getting affected by different types of natural disasters. But roughly 1/3 of the dollars being spent on the recovery efforts are coming from the US. Why is that important? Well, from the last 42 years, natural disasters have cost the US government roughly in total $2.2 trillion. Now, we talked about this being a potential growth industry. The US, the White House came out back in April, saying that they believe by the end of the century, the cost of natural disasters to the US budget, maybe roughly $2 trillion per year. So that’s almost what we spent over the last 40 years combined. Now, that’s just to the US budget, that doesn’t factor in what companies are going to spend so that they’re more prepared and can have continuity and be able to provide consistent goods and services throughout disasters. That doesn’t include will consumers and individuals and households need to spend like buying that generator or buying new paint, or building things for your house to make it safer, like better drainage for the next coming flood. That doesn’t include governments, companies and individuals outside of the US are spending. So if you look at these numbers, this is one of the most shocking growth industries that are out there that people don’t seem to necessarily be looking at from an investment perspective. And that’s why we felt it was really important to try to put many of these companies together and provide that as an investing opportunity for for individuals, hedge funds, maybe even insurance companies that realize that risks are out there. And maybe these companies that insurance companies end up having to give a lot of money to to help pay off their claims for for people that have their policies. You know, maybe that’s an exposure that they might also be looking for.

 

Simon Erickson  12:13

That’s a great point, Andrew, you know, and I like that you’re taking a unique angle on this, right? Like you said, it’s oversaturated and all the climate funds all the ESG, you know, that you didn’t ever want to be just another offering in a crowded field. I’ve enjoyed chatting with you and your partner Micah a couple of months ago. With that picture, as you know about the space theme ETF. You started, you have an ETF, you ticker on that as UFO. You’ve taken a unique angle on it, though, because any company could, or a lot of companies could have satellites out there. But you’ve actually mandated that the majority of revenue was dedicated to satellites and things are actually out in orbit. Can you tell me a little bit about the methodology based on everything you just said? Is this a wide net? You could cast right consumer government a bunch of different things? Can you tell me about the methodology? Is there anything specific that you’re demanding for a company to be in this ETF?

 

Andrew Chanin  13:03

So there are numerous ways for companies to be qualified, like we mentioned, aerospace, aerospace and defense conglomerates, you know, there’s a wall against them, and those companies are filtered out. But one of the things that could possibly make a company eligible for inclusion are things like having contracts with a group like FEMA, or other related government agencies.

We actually just saw that one of the top holdings in the fund, Tetra Tech (NYSE: TTI) had just announced yesterday that it received roughly a half billion dollar contract from the Army Corps of Engineers help with things like recovery and removal of hazardous and radioactive waste. You know, that’s a major government contract, and you look at something like Fukushima, and they weren’t prepared. And before a disaster happens is when you’re supposed to be really focusing on and doing what you can to prevent it. So your government contracts such as such as those helping with different areas that may help us with natural disasters in the future. Remote energy, there’s a lot of screening for things like companies that aid with things like wildfire, droughts, hurricanes, floods, tornadoes, and such. So there are many different word searches that we’re doing to analyze the different companies that are out there.

And ultimately, the index provider goes through these names. They reconstitute the index annually, and at those times are looking to remove names that are becoming less important in the area of natural disasters and looking to add companies that say maybe there have increased their profile and the natural disaster area have won, you know, large major government contracts or foreign government contracts for the area of aiding with natural disasters. So it’s not as much of a revenue focused model and one main reason is because many companies don’t break down this information. So it’s even tougher to get this information as far as percentage of revenues and things like that, but it’s really kind of keeping the finger on the pulse, constantly analyzing this industry, seeing who’s winning contracts, seeing what companies are doing new business lines that they’re creating to address global natural disasters. And those are the types of companies that are making it into the font.

 

Simon Erickson  15:14

Yeah. And Andrew, when there is a disaster that hits I mean, certainly there’s gonna be a spike, there’s going to be commercial impact that you can see revenues pop, for a lot of these companies, whether it’s cleanup, whether it’s engineering, whether it’s mobile housing, whatever it is, I mean, there’s going to be a response to something that happens, it sometimes can be pretty significant to, especially to a smaller companies, revenue, top line or anything? Or is it you know, how many, how many constituents you know, do you want to have in the family?

How many holdings do you want to have? Are you buy-and-hold? Are you wanting to get in early? And if there’s a pop, you’re just going to kind of keep writing it out? Or do you want to be a little bit more responsive based on things that are going on that might be one time events?

 

Andrew Chanin  15:49

Yes. So you know, this is a passive global index that FEMA tracks, I think your individual investors will choose how they want to utilize the funds, such as the FEMA ETF. And you know, you might have people that say, Hey, I want exposure to companies that are going to come and help a me in my time of need, because I live in a high risk area. And I want some type of exposure to those companies that I might be relying upon in the future. And they might see it as a buy and hold, you might have a tactical hedge fund that says, Hey, I just got an alert that there’s a new Tropical Storm developing in the Atlantic. And you know, I think this might be the big one. And I want to do this, you know, based on a capitalist trade, and you invest based on some natural disaster that either I’m aware of, or I think might occur sometime in the near future. We mentioned insurance companies that might say, Hey, these are companies that we have to spend a lot of money utilizing, or our that our customers spend a ton of money to rebuild your why wouldn’t we want exposure to those companies, let’s invest in a basket of global in many, many cases, these are multinational companies that are helping all around the world for various efforts as well. Maybe they want exposure to that, I think this may check a lot of boxes, for all different types of investors and for their various needs. And so I think that makes this certainly interesting.

You know, when you do have major natural disasters, you get a lot of media cycle and coverage around them typically, you know, just just now we’re talking about what’s going on in Kentucky. And we’re talking about wildfires and droughts and the lowering of water levels and in vital reservoirs that we have, when there’s a major natural disaster that tends to start taking over new cycles, and these companies start to get paid a lot more attention to. And so to the extent that there are larger events, or the next, you know, Katrina level event or other types of natural disasters, these are this becomes an industry that starts to grab a lot more headlines, and many people might look to invest in an area that is about to start getting a lot of coverage.

 

Simon Erickson  17:57

Yeah, and last but not least, under you mentioned Tetra Tech, you know, getting a win here with the Army Corps of Engineers. Can you talk about a couple other companies that are in this fund, including one that overlaps with your your space themed ETF as well?

 

Andrew Chanin  18:10

Yeah, there is one overlapping name between UFO and the famous ETF. And that’s Maxar (Nasdaq: MAXR). So when you think of natural disasters, one of the most important parts is identifying that there’s a natural disaster and tracking that natural disaster trying to figure out where it may impact you if it’s something like a wildfire you’re tracking spread, how much of it’s contained, how controlled is what kind of weather patterns do we see coming into the area that could shift or affect this wildfire? Well, a company like Maxar, who is a significant developer manufacturer and operator of satellites does a lot to monitor weather patterns and natural disasters. Therefore, they have a place currently in both FEMA ETF and the UFO ETF. This space is an incredible part of how we deal with mitigate track monitor and alert people around the world to the formation of natural disasters.

 

Simon Erickson  19:02

Fantastic. Once again, Andrew Chanin and the co founder and CEO of procure asset management, you know, a couple of months or a couple of years ago, I should say they had the first space themed ETF with the ticker UFO on now and now they have the very first disaster recovery themed ETF: F E M A is now available to be tradable for investors as well Andrew, it’s always a pleasure. Thanks for joining me on the 7investing podcast.

 

Andrew Chanin  19:24

As always, thank you, Simon. And stay safe.

 

Simon Erickson  19:27

Certainly will helping us all weather the storms out there whether it’s financially or in other ways. We appreciate you for tuning in to this edition of our 7investing podcasts. We are here to empower you to invest in your future. We are 7investing.

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