The ETF industry has gone through the looking glass.
The newest exchange-traded fund to hit Wall Street is also the first to track one of the fastest-growing areas of Wall Street: the exchange-traded-fund industry.
The ETF Industry Exposure & Financial Services ETF
tracks an index comprised of the public companies that work with ETFs, including sponsors like State Street
—which beat profit expectations earlier this week thanks in part to its massive ETF inflows—as well as exchanges, index companies, and trading and custody providers.
“Not only are we seeking to capture the performance of the industry, but we’re also looking to bring together many of its leaders to leverage their authority as we monitor, research, and benchmark the category’s potential future growth,” said Guillermo Trias, chief executive officer of Toroso Investments, who developed the concept behind the fund and is on the committee that oversees the index that it tracks.
The ETF industry has exploded in popularity over the past few years, with global assets hitting $3.7 trillion, according to research firm ETFGI. That’s up from $807 billion from the end of 2007. The number of funds has also skyrocketed, hitting 4,874 currently, up from 1,184 in 2007. Concurrently, the number of funds that have closed recently has also accelerated, with some critics charging that many of the recently introduced funds are too niche or ill-defined to be of much use for the average investor.
ETFs typically hold baskets of securities, much like mutual funds, but like stocks they also trade intraday. Broadly, they have grown in popularity amid a multiyear shift to passive management, as the vehicle is dominated by the kind of index funds that provide broad exposure to an asset class or region, as well as their greater tax efficiency and lower fees, compared with mutual funds.
The lower fees could be a point for investors to watch out for, as many industry experts see providers in a “race to zero.” The biggest fund issuers—which also includes Charles Schwab Corp.
and Invesco Ltd.
both of which are “tier one” holdings of the ETF industry fund—have been regularly cutting the expense ratios they charge to preserve their market share.
Another hurdle for the fund is that it won’t include one of the biggest players in the industry. Vanguard, which has seen hundreds of billions in inflows in recent years and holds an 18% market share in the ETF space, isn’t publicly traded.
In its first day of trading, the ETF Industry fund dipped 0.1% on volume of 11,700 shares.
More from MarketWatch