The exchange traded fund landscape is changing. We are no longer in the first inning, but rather in the middle stages of the industry’s growth.
On a recent Ignites webcast, myself and Shundrawn Thomas, managing director and global head of ETFs at Northern Trust, the provider behind the FlexShares suite, looked at how providers are either prospering or fading in the ETF arena.
With the land grab for beta indexing strategies already over, ETF providers will have to engineer creative strategies to help differentiate themselves from the well-established firms.
PowerShares S&P 500 Low Volatility ETF (NYSEArca: SPLV), for instance, has garnered almost $2.5 billion since launching in May 2011 as investors jumped at the opportunity to invest in a basket of stocks that have exhibited smaller price swings. Investors are putting a premium on safety after being burned twice in the past 12 years by the dot-com bust and subprime meltdown.
“Product development is the single greatest factor of success,” Thomas said in the webcast.
Specifically, Thomas believes that we are moving toward innovation in enhanced indices, fundamental weighting and actively managed products as a way to create an “expanded array of investment strategies.” In addition, sponsors are leveraging brand names to create competitive advantages.