Who's Winning The ETF Race?

January 05, 2010

 

Invesco PowerShares
$42 billion in AUM
$197 million in estimated fees

Largest ETF: PowerShares Nasdaq-100 ETF (NYSE Arca: QQQQ), $16.9 billion

PowerShares is perhaps best-known for its quant-driven “Intellidex” ETFs, which helped turn the company from an upstart into a major player in the first half of this decade. The popularity of those funds, however, has declined sharply. Its original “flagship” fund—the PowerShares Dynamic Market ETF (NYSE Arca: PWC)—now has just $259 million in assets, making it only the 25th-largest PowerShares ETF.

Today, the PowerShares lineup is marked by its eclectic nature. Forty percent of its assets ($16.9 billion) are in the PowerShares Nasdaq-100 ETF (NYSE Arca: QQQQ), a quasi-technology-sector ETF that it acquired a few years ago. After that, PowerShares’ largest ETFs are commodity and currency funds: the $4.2 billion PowerShares DB Commodity ETF (NYSE Arca: DBC), $2.4 billion PowerShares DB Agriculture ETF (NYSE Arca: DBA) and $1.4 billion PowerShares DB US Dollar Index Bullish Fund (NYSE Arca: UUP).

Below the top five, the products get even narrower: ETFs that own preferred financial stocks, or target just the global water crisis, and … well, you get the idea.

By constantly innovating and launching new funds, PowerShares has been able to stay ahead of a number of market trends for a decade. The question, obviously, is whether this is truly a sustainable growth strategy, without stronger support from the company’s “core” equity ETFs, including both the Intellidex ETFs and the FTSE RAFI fundamentally weighted product series.

Of note: Despite having less than half Vanguard’s assets, PowerShares earns about 50 percent more in annual revenues, showing that higher fees do add up.

ProShares
$25 billion in AUM
$234 million in estimated fees

Largest ETF: ProShares UltraShort 20+ Year Treasury (NYSE Arca: TBT), $4.3 billion

Speaking of high fees, ProShares­—with just 3.3 percent of industry assets—pulls in 8.9 percent of all ETF fees. By charging fees of 0.95 percent on its heavily traded family of leveraged and inverse ETF, ProShares actually pulls down more in annual revenues than either PowerShares or Vanguard.

2009 was an incredible year for the company. Despite extensive negative media attention surrounding the performance and design of its core products, ProShares attracted $8.5 billion in net new cash from investors (or perhaps we should say speculators) in 2009 through November, the third-highest of any ETF company this year. The media may not like the ProShares products much, but traders sure do.

Van Eck
$12 billion in AUM
$72 million in estimated fees

Largest ETF: Market Vectors Gold Miners ETF (NYSE Arca: GDX), $5.8 billion

Van Eck is a surprise entrant in the pantheon of leading ETF issuers. A relatively small company running a lean operation, Van Eck has accumulated $12 billion in assets spread across just 27 funds. Nearly half those assets—$5.8 billion—are invested in the Market Vectors Gold Miners ETF (NYSE Arca: GDX), while the remainder is sorted between additional commodity-producing equity ETFs (agribusiness, steel, etc.) and emerging market country funds (Russia, Brazil small-cap, etc.)

Van Eck has built a good franchise, and continues to churn out winning funds, such as the recently launched Market Vectors Junior Gold Miners ETF (NYSE Arca: GDXJ), the fastest-growing new ETF in 2009. However, the company is vulnerable to a pullback in commodity prices, as nearly all its funds are tied in one way or another to the commodity boom.

The Middle Tier

There are eight ETF providers that fall into the middle tier of the ETF industry: firms with between $1 billion and $10 billion in assets. These companies are still making their way in the world, looking to build major franchises and having some success at it, but not yet able to compete with the biggest firms on an asset basis.

Based on prevailing expense ratios, these firms pull down between $11 million and $48 million in annual fees. That is enough for some, but not all, of these companies to be profitable as stand-alone businesses. In many cases, these are still companies with something to prove.

 

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