How To Make Money In The ETF Business

February 09, 2017

It’s obviously not surprising that vanilla strategies generate the majority of revenue, and less than the assets would imply—most of the super-cheap strategies in the market are as vanilla as vanilla can be.

The more interesting discussion happens further down the list. Look at dividends! By assets, dividend strategies are well behind growth and value, yet they gain a huge premium on revenue. The interpretation here is clear: People will pay up, a lot, for income.

Conclusion

So is there a magic formula for “striking gold” in ETFs? Well, tongue-out-of-cheek, of course not.

Adding value to investors is the only magic formula there has ever been. But, looking at where the disparities are greatest, it’s hard not to suggest that being different is being rewarded. Yes, low-cost beta is important, and a driving force in asset growth. But firms that are providing unique products that meet unique needs can and do earn a rent far, far greater than the 3-basis-point bottom bar. 

You can contact Dave Nadig at [email protected].

 

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