As the exchange traded fund industry crafts innovative products and expands the universe of products available, asset growth could become the greatest impediment to industry, but the increased competition among fund providers will ultimately benefit the end investor.
According to a survey of 95% of the ETF sponsor market, Cerulli Associates found that product proliferation and its impact on competition is the top challenge to asset growth, with 41% of respondents considering it the major factor, reports Jackie Noblett for Financial Times.
Specifically, a group of new entrants, including JPMorgan Asset Management, Calamos and WBI Investments, are creating smart-beta and actively managed ETF offerings in response to the crowded traditional beta-index ETF space. [Smart Beta: Hate the Term, not the ETFs]
“We have to be more careful about what we launch and be more committed to what we launch in order to be differentiated and successful,” Scott Ebner, global head of product development and research at SSgA, said in the article.
According to Morningstar data, 23 ETF sponsors have launched 127 funds so far this year, compared to 143 new ETFs for 2013 and 156 new offerings in 2012.
“Before, sponsors were competing in a product strategy with just one or two firms, but now you’re talking about almost every firm wanting in on the latest strategies,” Jennifer Muzerall, senior research analyst at Cerulli, said in the FT article.
Consequently, Muzerall argues that the influx of competition could spark greater fee competition.
Cerulli found that smart or strategic beta offerings were among the most popular areas, with over half of ETF sponsors surveyed stating they had such funds in the works and another quarter of respondents planning to develop their own offerings.
Nevertheless, it will take time for these newer strategies to accumulated wider acceptance. Specifically, larger investors may wait for these funds to show a more predictable track record. [Smart Beta ETFs Grow, Gain Naysayers]
“Investors are waiting for these strategies to season, not unlike the process of selecting active managers,” Ben Johnson, global head of passive fund research at Morningstar, said in the article.
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Max Chen contributed to this article.