Are There Enough ETFs? Josh Brown, Others Weigh In

There are more than 2,000 exchange-traded funds right now. Is that enough?

“It’s easy to put the devil’s advocate hat on and say, ‘Enough is enough. Do we really need ETF 2,100, ETF 2,500?,” Dave Nadig, CEO of ETF.com, said. “Is there anything left to invest in that any rational investor would care about?’”

Nadig posed this question to a panel of experts brought together by State Street Global Advisors ahead of the 25th anniversary of the world’s first ETF — the SPDR S&P 500 ETF (SPY).

According to Jim Ross, chairman of the global SPDR business, there’s “always room” for more ETFs. However, it’s not as easy to launch new ETFs as it used to be.

“I think the challenge of launching an ETF today is you need to have a really, really strong plan around it,” Ross said. “The days of … 10-15 years ago when you could just take a bet and flip something up [are gone].”

The trouble with doing that today, according to Ross, is that the distribution platforms — like Merrill and Schwab — want to see trading volume and a significant conviction around a new launch.

“It’s a little bit of a chicken-and-egg game now,” Ross explained.

What Ross means by “conviction” is that the launch is coordinated across the firm from a product and marketing standpoint. “Your distribution force is on it, your advertisers are on it, [and] you are 100% ‘this is what we’re doing for the next X weeks, months, whatever it takes,’” Ross explained. “Because it’s so important to get that ETF out.”

For State Street, this does mean that the pace at which it launches new ETFs has slowed down.

“I’m just speaking for us, but we’ve launched fewer ETFs in 2016 and 2017 than we closed,” Ross said. “It has slowed down for us, and that is not unintentional. But when we go to market with something, it is with significant conviction.”

Meanwhile, two asset managers who use a significant amount of ETFs — Josh Brown, CEO of Ritholtz Wealth Management, and Joseph Smith, senior market strategist at CLS Investments — have slightly differing views on the abundance of ETFs.

Brown, who says Ritholtz is about 45% ETFs as a firm, doesn’t know if there is a “huge green field anymore” for new ETFs.