Here’s How Much Money The ETF Industry Makes

October 06, 2016

The result: an endless series of “bake offs” at wealth shops, either formal or informal, where individual advisors and due diligence teams alike pick the “best” products for their clients.

And while it’s definitely the case that there are fantastic ETFs out there that cost a lot more than 10 basis points, cost is one of the easiest factors to focus on, especially if the investment being considered is plain vanilla.

Enter Smart Beta

And make no mistake, plain vanilla still dominates the industry. There’s more than $1.7 trillion in assets currently in plain-vanilla ETFs, generating $3.8 billion in revenue.

 

 

By comparison, the “non-vanilla” part of the market generates $2.25 billion, despite having only 28% of the overall assets. And if you filter out the truly cheap vanilla, the difference is even more profound.

Remember, there are some very pricey plain vanilla funds out there. We consider most leveraged and inverse funds, for example, to be “vanilla” because their underlying indexes tend to be pretty plain vanilla. But note ProShares and Direxion easily make the top 10 list by revenue.

Looking forward, this means we’re really looking at a bifurcation of the ETF market.

On one hand, we’re going to have a lot of assets in a small number of very low-cost plain-vanilla products, which, on a dollar by dollar basis, are relatively unimportant to the bottom lines of their issuers.

On the other end of the barbell, we’ll continue to see a raft of relatively high-cost ETFs chasing themes, factors, fundamentals, niche markets, and using leverage, which can be enormously important to the bottom line.

Welcome to the ETF future.

At the time of writing, the author held no positions in the securities mentioned. Dave Nadig is the director of exchange-traded funds at FactSet Research Systems. You can reach him at [email protected], or on Twitter @DaveNadig.

 

Find your next ETF

Reset All