The market is fraught with ETFs now – there are over 7000 ETFs in the US market alone. The trend is ongoing that more and more capitals are moving from traditional mutual funds to passively managed funds represented by ETFs, we can anticipate this space keeps growing up exponentially.
So who are the providers of these 7000 ETFs in the U.S. market? What is the qualification criteria required by the U.S. Securities and Exchange Commision(SEC)? According to SEC’s website, “most ETFs are professionally managed by SEC-registered investment advisers. Some ETFs are passively-managed funds that seek to achieve the same return as a particular market index (often called index funds), while others are actively managed funds that buy or sell investments consistent with a stated investment objective.”
Using FactSet ETF screeners, I found there are 7616 covered by the ETF Reference dataset(as of Mach 2018), among which, 618 ETFs supersede an AuM of $500 Million, 408 passed $1 Billion, 72 over $10 Billion, and 11 greater than $50 billion, with only two having a size bigger than $100 Billion. Their issuers are as follows:
BMO Asset Management
Horizons ETFs Management
The Principal Financial Group
Barclays Bank PLC
As is well known, this market is domineered by the top three – BlackRock, Vanguard, State Street, accounting for over 60% of total AuM market shares. But newcomers are joining in the fierce competition with their distinctive strength and niche expertise. For example, IndexIQ in U.S. and Premia Partner in Asia market.
IndexIQ, longly regarded as the leader in the liquid alternative exchange-traded fund (ETF) industry. In April 2015, IndexIQ was acquired by New York Life Investment Management (NYLIM), becoming part of their MainStay fund family. Its inventory of ETFs has since increased from 13 to presently 30. The largest mutual life insurance company in the United States and one of the largest life insurers in the world, NYLIM made this strategic move to serve their clients or “investors with an expanded range of high-quality investment solutions”.
They claimed to do “self-indexing”, meaning they would have to hire a robust research team/data analysts to create indexes themselves. The star product by IndexIQ is IQ Hedge Multi-Strategy Tracker ETF(QAI), with over $1.1 Billion underneath as of March 2018. It was launched in September 2009, asking for an expense ratio of 0.76%. It tracks IQ Hedge Multi–Strategy Index, which attempts to replicate the risk-adjusted return characteristics of hedge funds, using multiple hedge fund investment., styles, including long/short equity, global, macro, market neutral, event-driven, fixed income arbitrage, and emerging markets. The big name IQ plus the complex index strategy seems to add a lot of traction, however, the performance measured by 5-year annualized return is 3.68%, the fund QAI lags at 2.46%.
Similarly, those behemoth asset managers such as Franklin Templeton, Fidelity, Invesco, Oppenheimer are joining or getting ready to join this ETF field. Bulge Bracket banks such as Goldman Sachs, JPMorgan, Nomura, UBS, Credit Suisse so on and so forth are also lining up.
In the Asia market, it’s worth mentioning firms such as Premia Partners, claiming themselves to be the ETF experts, possessing know-how on both financial prowess and local market features, they aim to “reshape the landscape for ETFs in Asia.” “Like active managers, we will apply fundamental screens to our portfolios and pick the best
companies. Like ETF managers, we will build products that are low-cost, efficient and easy to trade. In short, we build a smarter way to invest.” Their ability to create ETFs with components of A shares demonstrate their incomparable strength in providing investors direct exposure to the booming but highly restricted market in China.