Exchange Traded Concepts takes its 'ETF in a Box' concept to a whole new level.
Exchange Traded Concepts (ETC), the firm that puts ETFs into registration for third parties, has gained access to mutual fund companies interested in bringing ETFs to market through an agreement with U.S. Bancorp that could represent a quantum leap in potential business development for ETC.
The ETC-U.S. Bancorp partnership involves the creation of a new “multiple series trust” that will enable mutual fund clients, hedge fund clients, and registered investment advisors that already offer funds and investments through U.S. Bancorp to begin offering ETFs as well. The new trust’s name, ETF Series Solutions, is already on a filing to market three funds under the new arrangement.
ETC already has its own multiple series trust, or MST, the Exchange Traded Concepts Trust, under which a number of ETFs have been registered. But the new MST, by virtue of the partnership with U.S Bancorp and the bank’s association with more than $500 billion in mutual fund assets, is a totally different animal.
“This is a big game changer for us and the industry,” ETC Chief Executive Officer Garrett Stevens said in a telephone interview. “This is the first fund service provider to launch their own ETF multiple series trust,” Stevens said.
Again, the basic service ETC is offering is the same one it already offers individual investment managers that want to bring ETFs to market; namely, the marketing to third parties of its regulatory right to market ETFs. But the new MST will allow companies that want to launch their own ETFs do so in a more cost-effective manner by sharing a whole range of costs, such as trust level insurance and board expenses.
“U.S. Bancorp is focused on the servicing of the product, ETC brings their exemptive relief and their advisory services,” Bob Kern, director of business development at U.S. Bancorp, said in a telephone interview. He said his company hasn’t filed for exemptive relief and stressed that using ETC’s relief is an efficient way to bring ETFs to market.
Stevens at ETC said that the multiple series MST model should appeal to niche funds that want to lower their overhead on specialty products such as hedge fund ETFs.
“The typical customer is not going to want to launch a competitor to an iShares or an SPDR ultra-low-cost product,” Stevens said.
Getting Into ETFs, Quickly
It’s useful to think of ETC’s original line of business as angling with single fishing poles, snagging clients fund by fund, whereas the U.S. Bancorp partnership is akin to the company baiting countless hooks on a long line that ETC is then dropping into waters teeming with fish.
The fact that ETC was able to snag such a big partner speaks to the growing importance of ETFs in the U.S. money-management industry, as well as a trend in ETF industry towards lowering costs, including expense ratios.
In short, it’s become amply clear that more and more asset and investment managers want into the ETF industry before the market becomes saturated.
Total U.S. ETF assets are fast-approaching $1.2 trillion, and if the $28 billion that flowed into U.S.-listed ETFs in January is any indication about how the rest of the year will shake out, last year’s asset gathering of $119 billion will easily be eclipsed in 2012.
While large and storied mutual fund firms such as Fidelity, Alliance Bernstein, Janus and Dreyfus are lining up to win “exemptive relief” at the Securities and Exchange Commission, it appears that a company such as Milwaukee-based U.S. Bancorp has chosen to offer its mutual fund partners a shortcut to offer ETFs.