There are a few initiatives that could see ETF assets grow at an even faster rate, such as the adoption of ETFs within defined contribution pension plans, non-transparent active ETFs and the approval of the exchange-traded managed fund concept proposed by Eaton Vance in the US which will be offered to other active asset managers if approved by the SEC.
The potential for absolute growth in index and active ETFs and relative growth when compared to mutual funds and hedge funds means many traditional asset managers are considering if and how they should participate in the ETF industry while existing ETF managers are looking at how they might expand to new jurisdictions globally. The options traditional managers can pursue include:
*Creating products that use existing ETFs as the building blocks for funds
*Forging alliances with an ETF provider to launch new strategies or enter new markets. Recent examples include both MFS Investment Management and GSO Capital Partners, the credit business of private equity firm Blackstone Group, teaming up with State Street Global Advisors in launching ETFs; TCW and Emerging Global Advisors; and Fidelity with BlackRock, while several traditional and alternative fund managers have turned to ETF provider Source.
*Acquiring an ETF provider, like iShares did when it bought Credit Suisse Asset Management’s European ETF business and Claymore’s Canadian concern. In January this year, Warburg Pincus announced it was gaining a majority stake in Source and US asset manager Wisdom Tree said it was buying 75% of leveraged ETF specialist Boost.
*Launching a family of ETFs. It takes the largest commitment of time, money and resources to build an ETF ecosystem such as Fidelity’s family of 10 MSCI US sector ETFs. Franklin Templeton is testing the water with its first fixed-income ETF.
Deborah Fuhr is managing partner at ETFGI