The exchange traded fund industry is still in the early years of its growth spurt, and investors who want to capitalize on the phenomenal expansion can look to a targeted ETF strategy to directly participate in the industry development.
On the recent webcast (available On Demand for CE Credit), How to Capture Insights to the Growth of the ETF Industry, Michael Venuto, Chief Investment Officer of Toroso Asset Management, pointed out that the ETF industry has experienced a rapid 19.4% annual growth rate over the past decade as 1,500 exchange traded products hit the U.S. markets and overall assets grew to around $3 trillion.
Looking forward, Venuto argued that the ETF industry may continue to expand, especially as the upstart ETF companies continue to garner a greater market share of investment assets at the expense of traditional open-end, mutual funds. In the past two years, ETF flows have exceeded mutual fund flows by $635 billion dollars.
Venuto contends that mutual funds have enjoyed some what of an artificial distribution benefit that may soon end, such as with 401(k)s and retirement savings demand.
More investors are also becoming less enamored with high-cost active funds that have exhibited extended periods of underperformace to their benchmarks, favoring cheap, cost efficient index-based funds like ETFs as an alternative.
As the ETF industry continues to grow, investors can also capitalize on the growth through a broad exposure to those fund sponsors and other companies that have benefited from the huge expansion in ETFs through the recently launched ETF Industry Exposure & Financial Services ETF (NYSEArca:TETF).
As Venuto explained, TETF’s underlying Toroso ETF Industry Index provides exposure to the entire ETF ecosystem, encompassing companies that derive revenue from the ETF industry. The ETF covers liquidity providers, market makers, fund sponsors, ETF asset managers, index/data providers, exchanges, ETF service providers, custodians, trading platforms and distributions.
Specifically, the underlying index follows a four tiered weighting methodology. It includes a 50% tilt toward those with a substantial participation or direct financial benefits such as BlackRock iShares, Charles Schwab or Invesco PowerShares. Around 25% cover those with substantial participation or indirect financial benefits like DST Systems, JPMorgan Chase and SEI Investments. About 15% include those with moderate participation or indirect financial benefit such as Ameriprise Financial, Northern Trust and Vertus Investment Partners. Lastly, around 10% are comprised of new or minor participants, including Citigroup, E*Trade Financial and Envestnet.
Financial advisors who are interested in learning more about the growing ETF industry can watch the webcast here on demand.