Niche or specialty exchange traded funds that target a specific area of the market are gaining traction as traders utilize the strategies for tactical, short-term exposure.
“The ETF industry has proved that if you can actually deliver strategies that investors want, you can be very successful,” Jeremy Held, senior vice-president and director of research at Alps, said, Ignites reports. But those strategies “don’t necessarily have to be mainstream.”
For instance, smaller fund providers like First Trust, Global X and Alps have been building assets through specialty ETFs. Each of the three providers have attracted over $1 billion in assets year-to-date.
However, with all the cracks being filled in ETF industry, there are less opportunities for further product development.
“People aren’t seeking to be niche-y or specialty as much as that’s where they are being led,” Bill Belden, head of ETF product development and management at Guggenheim Investments, said in the Ignites article. “White spaces are fewer and farther between, and where they are, are smaller than they have been in the past.”
In the end, these targeted ETFs should address a specific investment goal that is missing from the market in either tactical or strategic client portfolios.
“What’s key about innovation is that it centers around client needs,” Bruno del Ama, chief executive of Global X, said.