Summer Slowdown? Not In The ETF Industry

by on August 26, 2009

The summer months are often slow ones for many businesses, with vacations taking priority over conference calls and sales pitches. But the ETF industry has seen a boom in recent months as several issuers have introduced new funds to the marketplace, continuing the breakneck pace of expansion that the ETF industry has enjoyed for several years now. Since April, when the ETF industry actually contracted by 14 funds, we’ve seen countless new fund additions with only a handful of closures. A recap of the industry’s recent expansion:

  • May 2009: Invesco PowerShares closes 19 of its ETFs, citing asset levels and potential for future growth. While the number of funds closed was a significant reduction to the PowerShares product line, the shuttered ETFs accounted for a very small portion of the firm’s overall assets. Outside of the PowerShares closure, the ETF industry added five new funds, resulting in an overall loss of 14 funds to the industry.
  • June 2009: June was a big month for ProShares, as the Bethesda, Maryland-based sponsor strengthened its grip on the internal leveraged and inverse fund markets. June also saw the launch of the first Peru ETF, iShares MSCI All Peru Capped Index Fund (EPU), as well as the iShares S&P Emerging Markets Infrastructure Fund (EMIF) and the first strategy-specific hedge fund ETF from IndexIQ (MCRO). In aggregate, the industry added 12 new ETFs in June.
  • July 2009: July was a busy month for ETF innovation, with Direxion introducing a pair of leveraged real estate ETFs, ProShares launching the first 130/30 ETF, and Javelin Funds making its entrance into the ETF industry with an Islamic Market ETF (JVS). In addition, July saw First Trust launch its Community Bank ETF (QABA), which offers exposure to a new sector of the financial industry, and the first U.S.-listed fund from European ETF giant ETF Securities.

So far, August has picked up right where July left off, with the industry expanding by at least four funds this month. Among the new funds introduced over the last four weeks:

New World Order

A common trend emerges as one reads through the list of ETFs introduced in the last several months. With only a couple exceptions, there are no “plain vanilla” equity or fixed income ETFs being launched at present. Most new funds hitting the market today focus on a previously-uncovered location (such as Vietnam), a new investment strategy (such as a 130/30 ETF), or a micro-sector (such as community banks). Innovation in the ETF industry continues to drive growth, but issuers are reaching further and further for new fund ideas that will meet sufficient investor demand.

Another trend is emerging: ETFs are gaining acceptance among investors much more quickly than previous launches. The introduction of ETF Securities’ Silver Trust is perhaps the best example – the fund topped the $100 million in assets mark within a month of launch. It seems as if issuers are now responding to investor demand, only bringing funds to market that have investors are asking for, as opposed to taking the “volume” approach of trotting out dozens of ETFs and hoping the demand materializes.

Disclosure: No positions at time of writing.