According to Morningstar data, the 3 firms grabbed $70 billion of the $96 billion in industry inflows, or $3 of every $4 invested in ETFs through the end of July. Investors are attracted to the liquidity factor that the larger funds can back up, and the bigger players can offer lower fund fees. [In the ETF Price War, Investors Win]
“If ETFs were more efficiently priced, I’d be more interested in the thinner vehicles,” James DePorre, President of Shark Asset Management said. “But because of the disconnect with the underlying assets, there is little choice but to stick with the more liquid and heavily traded ETFs.”
The bigger providers have assets and trading volume, two qualities that the smaller providers can not come up with overnight. The smaller providers will have to create successful niche products to compete with the bigger providers. For the rest of 2012, there is likely to be more merger and acquisition activity as the smaller players begin to wane, and the evolutionary process takes over.
Actively managed ETFs are a potential growth area for the business. However, several active ETFs have low trading volume and assets so far. [Many Active ETFs Struggle to Survive]
Tisha Guerrero contributed to this article.