How To Make Money In The ETF Business

February 09, 2017

 

With almost 80% of the assets, traditional equities make up the lion’s share of revenue, but I find it interesting how much of the pie is taken up by commodity ETFs. The majority of those assets are just in a handful of funds—the SPDR Gold Trust (GLD), iShares Gold Trust (IAU), United States Oil Fund LP (USO) and the like.

In fact, GLD alone accounts for $127 million in annual revenue out of the $333 million that commodities as a whole takes on. GLD continues to be the dominant player in the space, despite having an expense ratio 0.15% higher than competitor IAU. It’s nearly the definition of a cash cow.

In general, the “gut” sense that international and niche assets are better revenue generators per dollar holds out across the industry.

But what about “geared,” or leveraged and inverse, funds?

 

As a whole, levered and inverse funds make up a tiny part of the industry—under 2% by assets. But from a revenue perspective, they punch far above their weight class, pulling in almost 7% of all the fees in the business. And there doesn’t seem to be a clear connection between how much juice you’re offering up for how much extra revenue you can generate. The message is clear: People will pay up, a lot, for geared exposures.

 

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