Yet some smaller firms are flourishing by offering specialized ETFs that use leverage or track nontraditional benchmarks that don’t weight stocks by market cap, for example.
The “second-tier” firms battling for market share include Invesco PowerShares, Van Eck, ProShares, WisdomTree, Guggenheim, First Trust, Direxion, Global X, ETF Securities, U.S. Commodity Funds, FlexShares, IndexIQ, AdvisorShares, Emerging Global Shares, RevenueShares, Teucrium, FactorShares, Northern Trust, GreenHaven and Exchange Traded Concepts. [ETF Providers: Go Big or Go Home?]
‘Natural weeding-out process’
Nearly $140 billion has flowed into U.S.-listed ETFs year to date through Oct. 31, according to Morningstar.
“So from our standpoint, these signs of maturation are hardly heralding a decline just around the bend,” Goldsborough wrote in a commentary posted Wednesday. “But it does mean that the days of ETP issuers floating gimmicky products in a rising tide are nearing an end. In addition, we believe the current wave of closures indicates that exchange-traded product providers aren’t anywhere near as willing to prop up money-losing funds as they have been in the past.”
ETF closures are “a natural part of the weeding-out process that will continue as the industry matures,” the Morningstar analyst said.
“In our view, the heightened number of closures isn’t a bad thing for the industry and by no means represents the beginning of the end of the ETF industry. Instead, it likely signifies the end of the beginning,” Goldsborough wrote.
“What do greater numbers of ETP closures mean for investors? In the short run, we think it helps to consolidate liquidity into fewer products, and we see that as a good thing for investors,” he added. “Finally, we think increasing numbers of ETP closures signal a tacit admission by issuers that the broad beta end of the market is saturated, and increased price competition in this segment is here to stay. For investors, that can only be a good thing.”