The exchange traded fund universe is quickly expanding and maturing, but the growth has largely benefited larger companies and could leave new, smaller players on shakier ground, according to Citigroup.

Citigroup (NYSE: C) analyst William Katz says the new alliance between BlackRock and Fidelity Investments “reinforces the notion barriers to entry are rising – not falling,” reports Brendan Conway for Barron’s. [Tom Lydon Discusses the Fidelity-BlackRock ETF Deal]

“The fact that Fidelity is partnering with BLK as opposed to building ETF manufacturing is a recognition that it is difficult for new players to enter the industry,” Katz said in a research note. [Fidelity, iShares Expand ETF Partnership: What Does it Mean?]

Katz points to three dominant aspects in the ETF industry: almost 70% of global ETP in assets under management fall under the three largest providers, scale and profitability go hand-in-hand, and distribution is a major factor, especially in reaching market and geographic segments.

Moreover, Katz outlines three key points that are raising the barriers to entry: “first mover” advantage where the first ones on the scene garnered greater assets, slow regulatory process, which favors established firms with exemptive relief, and rising strategic costs.

Showing Page 1 of 2