ALPS’ other success stories include their “Dogs of the Dow” series of factor-based ETFs, the most popular of which is the $2.2 billion ALPS Sector Dividend Dogs ETF (SDOG). SDOG equally weights the five highest-yielding S&P 500 companies in each sector.
“SDOG wasn’t first to market, not even close,” said Held. “But it was successful because it was so different than every other dividend product that existed at the time.”
ALPS also runs a handful of thematic strategies, such as the ALPS Medical Breakthroughs ETF (SBIO), which focuses on U.S. biotech small-caps with drugs in late stages of clinical trial. SBIO has only one company in common with the S&P 500, Akins notes.
“I love the niche ETF products out there, but generally the products that make sense will find niches that are still very large in market capitalization, have plenty of names and have plenty of liquidity available,” he added. “When you try to parse the market too small, the ETF structure doesn’t work as efficiently.”
Managing The Managers
Akins says ALPS often fields calls from active managers looking to package their strategies into an ETF, or from index managers curious about the best way to replicate a pet project index.
“I’d say 75-80% of our strategies still come from partnerships, where we license somebody else’s IP,” he said. “We consider ourselves a manager of managers—a partnership firm.”
To that end, ALPS maintains vast operational infrastructure, including an existing trust and board of trustees that it can use to bring down costs, scale up distribution and speed up launch times for new funds. It guides newcomers through the nitty-gritty of compliance checks and due diligence reviews, and walks them through how to evaluate liquidity, capacity and market competition. ALPS even offers a robust marketing platform that reviews some 14,000 advertising pieces per year.
“It’s not a cheap process to get your exemptive relief or set up trading operations,” said Akins. “Then you have to worry about the operational nuts and bolts of managing corporate actions, staying tax efficient, maintaining a capital markets team and so forth. But we have the experience and the infrastructure to help new ideas get off the ground.”
ALPS also maintains a group that works directly with RIAs to analyze their models relative to ALPS’ ETFs. “It’s all about helping the RIA understand how and why they’d use our products in their allocations,” he added.
“It’s simple, but that’s the key to a successful ETF strategy,” noted Akins. “The end investor has to understand how you fit into their portfolio.”