Belden: Time To Revisit Index Providers

September 23, 2013

Guggenheim’s ETF chief says index firms need to provide more than brand name.

Guggenheim is the provider behind the quickly growing roster of the BulletShares target-date bond ETFs, and is today the 8th-largest ETF provider in the U.S., with more than $18 billion in total assets.

Bill Belden, head of Guggenheim’s ETF business, recently caught up with IndexUniverse staff writer Hung Tran to talk about what Guggenheim is up to these days, including why it decided to close the Yuan Bond ETF, what he sees coming out in the product development side, and why this might be the right time for ETF sponsors to revisit their relationships with index providers. Would you comment on the closing of the Guggenheim Yuan Bond ETF?

Belden: We came out with the Yuan Bond fund almost actually two years ago under the strong belief that it was going to be a rapidly growing area of the market, and I think that at the end of the day, we were early, and I think that our timing was about as bad as it could get, because no sooner did we bring it out in September 2011, than in October we started to witness the decline of the yuan as it got into choppier waters.

Frankly, it was somewhat of a race to the start line between ourselves, Market Vectors and PowerShares, and we just ran into head winds as far as that market was concerned. Any other planned fund closings?

Belden: We don’t have anything on the horizon around that and right now, as a matter of fact, coming out of that year, we’re kind of revving our engines a little more around the product-development side and hope to be bringing some more strategies in the relatively near future. We’re going to be building out our active fixed-income suite; we have a couple of strong entries there and that’s a core competency of Guggenheim.

And we also got our exemptive relief to be able to provide proprietary products, so that will better enable us to leverage some of the intellectual property that we have in-house that we haven’t been so active with in the past. What is your take on self-indexing?

Belden: We feel like we have a lot of intellectual property that we can leverage into strategies that will allow us to do that. But you can’t lose sight of the fact that there are big parts of the business that are driven by economics, and when you’re paying a third party to do something, you want to make sure the value that you’re deriving from that payment or that relationship continues to merit that relationship.

The indexing business is undergoing a fairly dynamic period of maturation or evolution, which has served to cause sponsors like ourselves to revisit those relationships to ensure that the fees being paid for the services that are provided by the index partner correspond or exceed the value that we and shareholders in our products derive from that.

It’s interesting to see that nobody’s stepping away from the indexing business, but it’s become a tougher business model, and you’ll probably either continue to see some sort of consolidation there or continue to see changing economics.

So, the question is, Are index providers generally providing the value that they’re getting paid for? I do find that there are index providers that are definitely delivering value, and we have several of those. But I think there are others who don’t add a lot of value through brand.



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