Just a few weeks ago, I wrote about a slowdown in new product creation in the exchange-traded fund (ETF) space. It was nice to see a slowdown in the mad frenzy of product creation and a renewed focus on other elements of the business—such as building a stronger base of users through education and better access. Not a bad idea when you consider that most Canadians admit they don’t understand the products.
Surprisingly, however, October saw a reversal of the trend with a flurry of activity on the launch front, according to Seeking Alpha. The spike saw 30 launches happen during the month, although there were another 15 closures. At the same time, there have been 56 closures in 2013, or one closure for every 2.4 introductions.
Indeed, according to data from ETFGI, during October, global ETF/exchange-traded product (ETP) assets reached a new record high of US$2.3 trillion. The month saw the most money headed into equities and the biggest outflows in products focused on commodities and fixed income.
Among the new ETFs launched, a few new themes emerge—currency hedging, corporate and high-yield bonds, infrastructure, short-term bonds (for those tapering-wary investors focused on liquidity in their fixed income portfolios), consumer spending and initial public offering products. The latter is an interesting trend, as private equity investors get ready to cash in on their investments by heading to public markets.
Closures include a few emerging market sector funds, which have failed to gain traction in the marketplace.
The surge comes at a time when the ETF landscape looks pretty challenging for all but a few players. According to Seeking Alpha, trading activity is pretty skewed with only six products averaging over $1 billion a day in trading, accounting for 51.6% of the total ETP dollar volume during the month. That means, a tiny 0.4% of products drive the majority of trading activity.
As this happens, the industry continues to create new products, many focused on identifying and hopefully filling new niches. The question is, which ones will stick and which ones will be shaken out? And will providers continue to focus on consumer education and helping buyers overcome barriers to adoption?