US ETF Industry: Ch-Ch-Changing

July 25, 2017

I was debating between Bob Dylan’s “The Times They Are A-Changin'” and David Bowie’s “Changes” (“Ch-ch-changes” refrain) to be the soundtrack for this ETF industry blog. Becoming musically aware in the 1970s, I’m much more of a Bowie fan.

Bowie represented more of the future to me, and that’s where I’m going with this. “Changes” is more appropriate when explaining what I think is changing in the ETF industry. Change as in declining fees, change in the player, the who's who in this business and the who's taking over whom in recent weeks. Change is the only path forward. 

Bowie also starred in the sci-fi movie, “The Man Who Fell To Earth,” which, as I think about it more and more, is an analogy for the “Investment Fees That Fell To Earth.” Cheap cost is what’s behind the ETF phenomenon that’s changed how people invest, save, trade, advise, etc. But those cheap costs have had an impact on the ETF industry as well.

With assets in U.S.-listed ETFs now above the $3 trillion mark, the industry has certainly matured, and as anything gets older and bigger, it changes. The ETF industry is in a new period of change, and over the last few weeks, there’s been confirmation of that.

Foreign Buyers Circle

Sticking with the David Bowie soundtrack, it’s time to switch to one of his greatest hits: “My China Girl.” We just had our China moment in the U.S. ETF industry. Two deals in a week resulted in two U.S. ETF issuers being bought by Chinese firms, and this to me is not trivial.

Earlier this month, ETF issuer KraneShares, which has $827 million in ETF assets in the U.S., said it signed an agreement to sell a 50.1% majority stake in the company to China Investment Capital Corp. (CICC), a China-based financial services firm with subsidiaries in New York, London, Hong Kong and Singapore.

KraneShares is a fairly small boutique-style ETF issuer, offering only five funds and barely scraping into the top 40 U.S.-based ETF issuers in terms of assets under management (AUM). However, the firm has a laserlike focus on China.

The acquisition by CICC will lend the small ETF issuer some big-time firepower when it comes to resources and research, but it also gives CICC an entry into the exploding U.S. ETF market.


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