Challenging Times For ETF Issuers

by on June 16, 2012 | ETFs Mentioned:

As we approach the midway point of 2012, the ETF industry has continued the brisk pace of expansion set in previous years. There are now close to 1,500 exchange-traded products available to U.S. investors, with new funds launching on a regular basis. Already in 2012, more than 100 new ETPs have debuted, gathering close to $3 billion in aggregate assets between them. 

The ETF industry is undoubtedly still in the early innings; according to the ETF Industry Association inflows through May surpassed $63 billion already in 2012. In that sense, ETF issuers are in a perfect position, benefiting form increased acceptance of the exchange-traded structure [sign up for the free ETFdb newsletter]. 

Yet from another perspective, ETF issuers face some significant challenges; new ETFs, while numerous and often innovative, are struggling to catch on with investors. Only three of the ETFs launched in 2012 have cracked the $100 million mark, and many more are well below the rule of thumb breakeven level of $25 million. 

It’s not impossible to launch a new ETF that quickly gathers assets, but it is very difficult. In fact, all ETFs that have launched since the beginning of 2008 have a smaller asset base than the S&P 500 SPDR (SPY) alone. The following graph illustrates both the “top heavy” nature of the ETF industry, as well as the significant first mover advantage: 

Disclosure: No positions at time of writing.