ETF Space Still Has Room to Welcome Scrappy Newcomers

A recent regulatory filing by 70-year-old financial services firm Wedbush Securities marks the latest example of the steady stream of legacy asset managers finding their way into exchange-traded funds.

In the case of Los Angeles-based Wedbush, the strategy is to package some of its proprietary research on artificial intelligence into an ETF that tracks a concentrated index.

Key to Wedbush’s success as it tiptoes into a $10.7 trillion market already boasting more than 4,000 ETFs is finding a niche—a message other asset managers and financial advisors should heed.

“We’re not trying to barge into a crowded room,” said Wedbush Fund Advisors Chief Investment Officer Cullen Rogers.

Drawn to Liquidity, Transparency, Low Fees

Like virtually every newcomer to the ETF space, Wedbush justifies its move by leaning on the obvious benefits of the liquidity, transparency and low fees for which ETFs are known.

That’s the easy part. The harder part is finding that niche in an ETF landscape that appears to cover all bases, and then some.

With behemoths like Vanguard Group, BlackRock and State Street Global Advisors leveraging their vast resources, brands and scale to easily compete on price and distribution, one might assume the room is full.

Then you see a shop like Wedbush, with $8.9 billion under management, realizing it can join the party by creating an index from its Dan Ives AI 30 Research Report and wrapping it in an ETF.

Granted, not all ETF newcomers are sitting on such potential treasure troves of investable data, but many are. In fact, of the tens of thousands of financial advisors building portfolios for clients, there are plenty of examples of investment strategies and models that could be wrapped inside an ETF, assuming that is an objective.

As witnessed by firms like Tuttle Capital Management, a thriving niche ETF business can be developed by betting for and against a host of themes.

Then there are the single-stock ETFs that have burst onto the scene by giving active traders an easy way to soup up their exposure on specific directional bets.

Granted, not every newcomer can muster the resources to launch a cryptocurrency ETF that stacks up against the likes of the $59 billion iShares Bitcoin Trust ETF (IBIT), which stands out as the most successful ETF launch in history.

The Vanguard Effect

But look no further than Vanguard, with more than $2.6 trillion in ETF assets under management, to appreciate the opportunities and limitations at even the largest firms.

Last month, the legendary low-cost provider unveiled sweeping fee cuts to 53 of its 90 ETFs in a move that was seen by some analysts as Vanguard’s way of building share in some of its weaker ETF categories, including thematics.

Meanwhile, Vanguard has completely avoided cryptocurrency products and has a tiny six-ETF footprint in the suddenly popular active ETF space.

In essence, the biggest ships making wide, slow turns can create opportunities for scrappy newcomers.