Christian Magoon On The Claymore-Guggenheim Merger and The Future Of The ETF Industry

by on August 26, 2009

Yesterday, in part one of our exclusive interview, Christian Magoon, President and Senior Managing Director at Claymore Securities shared his thoughts on some of Claymore’s more popular and innovative ETF products. Today, he discusses the recently announced merger between Claymore and Guggenheim, and makes some interesting predictions about what the future holds for the ETF industry.

ETF Database: Claymore recently announced that it entered into an agreement and plan of merger with Guggenheim Partners, a global diversified financial services firm. What does this transaction mean for Claymore, and more specifically, its line of ETFs going forward?

Christian MagoonChristian Magoon: The two things we see coming out of this transaction are growth and strength. First, in terms of growth, this transaction gives us the ability to organically grow either through new products or existing products to new markets. Secondly, it certainly gives us the ability to grow through opportunistic acquisitions, be it product lines or sponsors that may help us increase our market share. And then finally, growth through alliances or partnerships that may not have been open to us before, but are now opportunities to us as a Guggenheim company.

We also expect that this transaction will strengthen our firm. Certainly in research and asset management, Guggenheim has world class abilities and that will translate into some of our products and some of the strategies that are underlying new products. In addition, it allows us to devote more resources to areas like financial advisor education and training, which we think are especially important for the ETF business. And then certainly the Guggenheim brand will help us increase the visibility of our messages that we are promoting to the financial advisor community – that includes branding, advertising, marketing, etc.

We believe this transaction grows us in ways that we couldn’t grow before and really strengthens our business, and we are excited about the opportunity in front of us as a Guggenheim company.

ETFdb: Where do you see the industry going over the next two to five years? What major milestones do you think we’ll hit? Are there any product areas that you think will see particularly strong growth in the coming years?

CM: I think that some of the tips of the waves that are going to be important going forward are the creation of the active ETF, though this area may not produce a lot of results for three to five years. I think it’s probably overblown in terms of how people think active ETFs are going to affect the industry in the next year or two, but I think as these funds start to have a track record of three to five years and receive star ratings from Morningstar, it will put active ETFs on the same comparison platform as actively-managed funds. I think this will introduce ETFs and the ETF structure to a whole new group of investors, and this will be significant for ETF asset growth.

Second, I think there is going to be continued consolidation as well as entry of new companies into the ETF space. In terms of consolidation, I think products are going to consolidate and I think sponsors are going to consolidate. In terms of new entrants, I think we are going to see institutional firms, firms from overseas, and traditional mutual fund players enter the scene pretty aggressively. I think it is going to be very dynamic.

We are also going to see a variety of new investment strategies that launch in the ETF vehicle as well as a variety of new structures that will be needed to allow these strategies to exist. So there is going to be continued innovation in the ETF space. I think some of the strategies, be it long-short strategies, be it managed futures type strategies, potentially some true hedge fund type strategies, will all exist in the form of an ETF. I think some of the new structures will try to deal with and eliminate some of the hurdles that typical investors face when they try to be a part of these strategies. I believe there will be structures that will be designed to eliminate things such as K-1s and to give access to securities that currently are hard to own in a traditional ETF structure.

The march for ETFs to enter the 401 (k) space is going to be very important, and I think that early progress has been disappointing. However, I think within the next year to two years there are going to be some significant breakthroughs, and this will be one of the areas that will be a boon for exchange-traded funds due to their costs and transparency. Some of their advantages or efficiencies from a tax standpoint will obviously be left behind because of the vehicle they are in, but I still think that the transparency and the cost efficiency of ETFs will make it a very viable competitor to current options available to 401 (k) plans. Maybe more importantly, it will help mainstream ETFs to the public. ETFs are still confused with EFTs [Electronic Fund Transfers] and until ETFs are recognized for being ETFs, their growth will be stunted.

Finally, I would say that the pace of innovation in ETFs will continue, and the manner in which ETFs are utilized in portfolios by individual investors, broker/dealers, and Registered Investment Advisors will dramatically change in the next few years. I wouldn’t be surprised to see systems set up at broker/dealers or Registered Investment Advisors that are similar to separately managed account systems or platforms that allow investment advisers to more easily access ETFs on a platform rather than actually having to go out one by one and buying them on exchanges.

ETFdb: Certainly some very interesting predictions! Thanks for taking the time to talk ETFs with ETF Database.

For more information on Claymore’s full product line, visit the company’s web site.

Disclosure: No positions at time of writing.