The ETF market has welcomed more than 230 new ETFs this year, boasting now almost 2,200 ETFs listed in the U.S. It has also seen total assets under management (AUM) grow to about $3.6 trillion, with year-to-date net creations on par with previous record years.
By all measures, the ETF industry is growing and hitting on all cylinders.
The ETF-of-ETF market, the ETF Industry Exposure & Financial Services ETF (TETF), however, is down 4% in 2018. TETF is currently underperforming the S&P 500 index significantly (as measured by returns of the SPDR S&P 500 ETF Trust (SPY) below).
Why? Put simply, because the current market environment has been no friend to asset managers.
TETF, with $7.3 million in AUM, sets out to capture the entire ETF ecosystem, from issuers to liquidity providers to index providers and everyone in between. However, the asset management side of the business (sponsors) is impacting TETF’s overall returns most this year.
|Liquidity Providers||Sponsors||Exchange||Service||Data & Index|
|Cowen Inc||Ameriprise Financial Inc||Cboe Global Markets Inc||Bank of New York Mellon Corp||FactSet Research Systems Inc|
|Flow Traders NV||BlackRock Inc||CME Group Inc Class A||Citigroup Inc||Morningstar Inc|
|Investment Technology Group||Charles Schwab Corp||Deutsche Boerse AG||E*TRADE Financial Corp||MSCI Inc|
|MarketAxess Holdings Inc||Deutsche Bank AG||Intercontinental Exchange Inc||Envestnet Inc||S&P Global Inc|
|Virtu Financial Inc A||Franklin Resources Inc||London Stock Exchange Group PLC||Interactive Brokers Group Inc||Thomson Reuters Corp|
|Goldman Sachs Group Inc||Nasdaq Inc||LPL Financial Holdings Inc|
|Invesco Ltd||Morgan Stanley|
|JPMorgan Chase & Co||SEI Investments Co|
|Legg Mason Inc||TD Ameritrade Holding Corp|
|Manulife Financial Corp||US Bancorp|
|Nomura Holdings Inc|
|Northern Trust Corp|
|Principal Financial Group Inc|
|State Street Corporation|
|UBS Group AG|
|Virtus Investment Partners Inc|
|WisdomTree Investments Inc|
As market volatility picked up, and a fear of rising rates dampened anticipated returns for money managers, new risk was introduced into TETF’s returns, according to Mike Venuto, chief investment officer and co-founder of Toroso Investments, the company behind TETF’s index.
That risk has caused TETF’s correlation to U.S. ETF asset growth to get off track. Remember that this fund is designed to closely track ETF asset growth, a job it has done well since inception until recently, when TETF performance has actually fallen behind, even as ETF assets grew.
(For a larger view, click on the image above)