Although this may seem like an obvious point, many asset managers and new issuers often see it as a given that their new fund will simply gather assets once it is released and available on the exchange of their choosing. Unfortunately, this is rarely the case. New ETF issuers need to build a strong team and have a concerted branding, marketing, PR, and sales strategy in place before their new fund launches. While it is possible to tack on such strategies to an existing fund that has already launched, it can prove much more difficult to gain traction and mindshare with the newsworthy launch date already receding into the past.
2) Getting onto platforms can be a chicken-and-egg problem: RIA education may be the key
Gaining assets under management is the top priority for issuers of a new ETF, and one of the best ways to accomplish this is to get onto a wire house or robo-advisor platform, gaining access to the hundreds of thousands of investors they represent. There’s just one problem: most platforms require a long track record, with substantial minimum AUM and liquidity requirements to boot. The challenge, then, becomes how to gain those assets under management.
One important way to accomplish this is by offering ample research material for RIAs. With robust explanatory whitepapers or investment cases, an RIA is far more likely to recommend a new ETF to a client if it fits their investment objectives. Such materials also can serve as excellent support documents for ETF salespeople as they make their rounds.
1) A Killer ETF concept is not enough (timing, timing, timing!)
HACK—The Cyber Security ETF—came up again and again throughout the conference. The fund was launched in late 2014 and—seemingly out of nowhere—has already drummed up more than $1 billion in assets under management, a rare feat that just 15% of all ETFs achieve. Panelists throughout the conference were quick to stress that HACK represents the exception, not the rule. But what hasn’t been as prevalent in the headlines is HACK’s direct competitor, CIBR, the First Trust Nasdaq CEA Cybersecurity ETF, which has garnered a comparatively paltry $91 million in AUM. Although $91 million is nothing to sneeze at in the ETF world, CIBR was launched about 8 months too late to ride the groundswell of fear and investor interest that followed the wave of hacking scandals at the end of 2014.
In other words, being first to a market niche can be helpful, even the key to success, but perfectly timing an ETF’s release can be a tricky business indeed. With the benefit of hindsight it’s easy to say that HACK’s release timing was a tactical master stroke, but it also benefited substantially from another factor: luck.
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So there you have them: five of the most important things to know for issuers looking to launch a new ETF. Some of them may fall into the “conventional wisdom” category, while others may be new to most in the ETF space, but it’s safe to say that they’re all worth taking into consideration, especially if your firm is taking the plunge and launching a new fund.
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