This year is proving to be another brisk one when it comes to new ETF launches. With seven months in the books, approximately 120 new ETFs have come to market, pushing the number or exchange traded products listed in the U.S. to over 1,700.
That number seems large, but it is a mere fraction of the total number of mutual funds trading in the U.S. Plus, a case can be made that investors benefit from having multiple options to choose from, but some market observers argue too many new ETFs can be a sign that specific niches being addressed by new funds are sign those market areas are in trouble.
“Between 1999 and 2000, just as the dot-com bubble was peaking, managers launched 136 technology funds and ETFs, according to Morningstar. Then they closed 31 in 2002 as the sector bottomed,” reports Lewis Braham for Barron’s. “The pattern is similar in other sectors: In 2007, 37 U.S. and global real estate stock funds were launched right before the mortgage crisis crushed the sector; 16 closed in 2009 as the sector was rebounding. Similarly, 10 energy master-limited-partnership funds launched last year as that sector peaked.”
While the merits of ETF issuers’ timing are likely always make for good cocktail party conversation, what cannot be refuted is that as the industry matures, it is becoming increasingly harder for new ETFs to immediately gain traction.