Large money managers continue to dominate the exchange traded fund universe, supporting the rising tide that has helped lift all boats across the industry.
“It’s unbelievable, and it’s great. It’s great news for you and me and … everyone else listening,” Chris Hempstead, director of institutional business development at IndexIQ, told CNBC.
Fund providers like BlackRock’s iShares and Vanguard Investments, the two largest ETF providers by assets, have taken the lion’s share of the ETF pie through low-cost index-based strategies. However, this has also left an opportunity for smaller players to differentiate themselves and provide attractive opportunities for investors looking for alternative ways to access the markets.
“IShares and Vanguard, they fight it out hard. I make the reference a lot of times to Formula One. It’s Mercedes versus Ferrari,” Hempstead added. “You’ve got the top two performers there in terms of asset growth, but then there’s a pretty big field of other ETF issuers who are fighting for maybe not so much the lion’s share of the assets, but fighting more for performance metrics, for a way to diversify away from a broader index like S&P.”
Hempstead argued that while the top players vie for the best traditional index-based ETF rank, there is an opportunity for other ETF players to fight for the best in strategy through alternative indexing or investment management.
“A lot of it comes down to alpha generation above and beyond the core allocation. So, how are managers, advisors, and wealth managers differentiating their clients’ portfolios?” Hempstead asked.
Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA Research, also argued that investors shouldn’t brush over these midsize firms’ offerings as many offerings targeted strategies that can help investors round out their investment portfolios.
“JPMorgan and Pimco are doing really well within active fixed income. You’ve got Global X with the thematic-oriented ETFs,” Rosenbluth told CNBC. “There are certainly other players, and depending upon if you want to specialize in certain themes, you want to look beside the top two firms. There are some great firms that are out there offering compelling products.”
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