As the ETF universe continues its rapid expansion, newcomers to the industry have brought to market fresh ideas and innovative products designed to satisfy the whims of nearly every investor. Andrew Rogers, CEO of Gemini Fund Services, recently took time to discuss his company’s creation of the Northern Lights ETF Trust. This new platform is designed to lower the barriers of entry associated with forming new exchange-traded products and offer a way for advisors to utilize the low cost and efficient ETF vehicle for their innovative investment solutions [see 101 High Yield ETFs For Every Dividend Investor].
ETF Database (ETFdb): Please explain the basics behind the Northern Lights ETF Trust.
Andrew Rogers (AR): Gemini Fund Services created the Northern Lights Fund to create a platform for advisors to form mutual funds, variable annuity funds, and now ETFs. The Trusts provided corporate governance, back office operations and distribution to advisors and reduced the time and expense to create investment companies. The initial Trust started operation in 2006 and the Trusts now have greater than $10 billion.
The Northern Lights ETF Trust was formed to lower the barriers of entries of forming ETFs and assist advisors in creating cost efficient solutions. We believe that innovative advisors will create ETFs that will provide new investment solutions.
ETFdb: Who is NLET targeted towards? Why does it make sense for them to utilize the NLET platform?
AR: NLET is targeted to advisors with innovative investment solutions that can be successful in an ETF. The Trusts have assisted advisors in creating alternative asset classes, tactical management, and hedged products in the mutual fund and variable annuity and we expect the same kind of solutions within the NLET platform.
The advisor will utilize NLETF to leverage existing infrastructure, strategic partners and knowledge. NLETF has formed an operational and distribution structure that will benefit the advisor in both limiting expense and providing assistance in raising assets [Download 101 ETF Lessons Every Financial Advisor Should Learn].
ETFdb: What do you expect in terms of ETF adoption going forward? What types of investors have been slow to adopt or are potentially major beneficiaries of embracing ETFs?
AR: I believe directional solutions will continue to migrate to ETFs. ETFs will continue to replace mutual funds in the equity and fixed income sectors as index investing for directionally long funds replace active management. Mutual funds will become more tactical, volatility adverse and hedged, providing investors protection from market volatility. ETFs will also continue to replace stocks for investors to gain access to the stock market. As a result of this trend, financial planners will increasingly replace stocks in their portfolios with ETFs for directional access to equities and fixed income.
ETFdb: There are some out there who think that ETFs have gone too far from their initial intention of offering broad-based exposure to buy-and-hold investors. What’s your take on the innovation in the ETF industry over the last several years?
AR: ETFs are an excellent solution for tactical, active management by providing liquid access to markets and enabling tactical managers to efficiently manage their portfolios. ETFs have replaced mutual funds in active management, and the volume created by active traders lowers buy/ask spreads and creates a more efficient marketplace. In many ways ETFs are replacing stocks as the trading solution for investors. Many advisors and investment companies utilize ETFs to gain exposure to various asset classes and the liquidity and ease of trading ETFs allow investors greater flexibility at reduced cost in gaining exposure to the market place [see Cheapskate Hedge Fund ETFdb Portfolio].
ETFs are now the primary security trading on many exchanges and ETFs are a valuable tool for active management.
Bottom Line: In an industry that has grown rapidly in numbers over the last decade, there are still only a handful of powerhouse issuers that dominate the space. Gemini Fund Services, partnered with ArrowShares, are now starting to democratize the industry, making it easier for professional money managers to enter the fairly young but highly competitive world of exchange-traded products.
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Disclosure: No positions at time of writing.