As investors continue to pour money into the fund industry, the sponsors behind ETFs have been riding the rapid growth spurt.
According to ETFGI data, shares in BlackRock, the largest provider of ETFs by market share and the company behind the iShares lineup, have outperformed the wider market, surging 35% year-to-date, compared to the 18% advance for the S&P 500, reports Miles Johnson for the Financial Times.
Shares of other financial companies that dabble in the ETF space have also beaten the market. For instance, State Street, which offers the line of SPDR ETFs, gained 25% this year while Invesco, the company behind PowerShares, increased 21%.
Johnson pointed out that investing in low-cost tracker funds may be rewarding but investing in the increasingly consolidated industry that provides them may be a more attractive play.
“The strong performance of these companies may be hinting that investors and analysts are in the middle of a process of radically reappraising what type of businesses they really are. Instead of being boring, low-growth fund managers, they increasingly may be seen as something closer to highly entrenched, high-margin toll roads for trillions of dollars of retirement savings that need to be invested in financial markets over the coming decades,” Johnson said.
Daniel Loeb, the American hedge fund manager, postulated earlier this year that BlackRock was a “misunderstood franchise” that was being “valued like a traditional asset manager” when ETF players are acting like “oligopoly businesses with faster growth and much higher incremental margins than traditional asset management — and thus deserve much higher P/E multiples over time”.
With the ongoing demand of ETFs steadily increasing and the rising usage of ETFs as a core component of many investment portfolios, the ETF industry and others associated with the rise of ETFs may continue to grow.
Meanwhile, investors who are interested in tapping into the rising growth story of the ETF industry can look to the ETF Industry Exposure & Financial Services ETF (NYSEArca: TETF) as a way to play ETF providers. TETF tries to reflect the performance of the Toroso ETF Industry Index, which tracks publicly-traded companies that directly or indirectly provide services or support to ETFs, including management, servicing, trading or sales of ETFs.
Company components found in the underlying index include ETF sponsors; asset managers; index providers; broker-dealers; securities exchanges; and service providers, such as custodians, transfer agents, and administrators, according to the prospectus. The ETF also includes a 6.6% tilt toward BlackRock, along with other companies heavily involved in the ETF industry like WisdomTree Investments 7.2%, Charles Schwab 6.8%, BlackRock 6.7%, CBOE Holdings 6.6% and Invesco 6.2%, among others.
For more information on ETFs, visit our ETF Performance reports category.