New Providers in U.S. ETF Space Set Record: ETFGI

Will SEC green-light more ‘nontransparent’ active ETFs?

Asset managers are tripping over themselves to get into the U.S. exchange-traded funds and products space, according to a report released Thursday by ETFGI, a London-based research and consultancy firm.

A record 19 new providers had entered the sector this year through the end of September.

This compares with the full-year record of 15 new entrants set in 2009 and repeated in 2014, ETFGI said.

The 19 new providers have collectively launched 37 products, accounting for $1.1 billion in assets. 

Twenty-one of these new launches follow smart beta strategies, and seven follow an active strategy.

ETFGI said the record number of new providers in the U.S. industry demonstrated a trend it had been watching: “that most asset managers feel they need to have a presence in the ETF industry.”

Among the new brand name entrants are Goldman Sachs Asset Management; John Hancock, which has partnered with Dimensional Fund Advisors; and Principal Funds.

Another entrant is O’Shares Investments, co-founded by Kevin O’Leary, who appeared on the ABC reality television show “Shark Tank,” and Connor O’Brien; together they also co-founded O’Leary Funds, a Montreal-based investment fund manager.

Following are the providers with the largest amount of new assets:

As for specific products the 19 new providers have been launched in 2015, the Pacer Trend pilot 750 ETF leads with $259.4 million in assets, followed by the Newfleet Multi-Sector Unconstrained Bond ETF with $129.7 million.

The Pacer Trend pilot 450 ETF has raised $106.8 million, and the Tuttle Tactical Management US Core ETF $66.3 million.

Active ETFs

According to the ETFGI report, regulatory filings with the SEC show that many asset managers are considering launching ETFs. It said a significant number of potential new providers had filed to launch “nontransparent” active funds, and were waiting to see whether the SEC would approve their new fund structures.

The proposed structures would provide transparency at the same frequency of traditional mutual funds, whereas under the current structure, the holdings of active ETFs are fully transparent.

In late 2014, the SEC approved one such structure: Eaton Vance's NextShares, a so-called exchange-traded managed fund. About a dozen asset managers have announced they will sponsor NextShares funds.

But regulators have raised concerns that a lack of transparency could hurt retail invetors. Precidian Investments' application for a similar product, called ActiveShares, was denied twice by the SEC.

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