PowerShares Founder Bruce Bond Is Back
And he’s got a new ETF firm he runs with his PowerShares co-founder.
Bruce Bond founded PowerShares with John Southard back in 2003, building it into one of the largest independent ETF issuers before selling it to Invesco in 2006. More recently, he and Southard bought Innovator ETFs, which currently offers two ETFs, the $317 million Innovator IBD 50 ETF (FFTY) and the $54 million Innovator IBD ETF Leaders ETF (LDRS). Bond and Southard have plans to expand that business in multiple directions, even if it’s a very different environment for new issuers today.
ETF.com: You're now CEO of Innovator. What brought you back into ETFs after selling PowerShares?
Bruce Bond: I really didn't intend to come back. John Southard, who was my partner at PowerShares, bought an insurance product that provided protection on the downside but gave him exposure to the upside, and he kept saying, “I can't imagine we can't provide this in an ETF. We should look at this.”
When we heard Innovator was for sale, we decided to buy it and use that as a platform to bring more ETFs to market with Investor’s Business Daily. They've been a great partner.
ETF.com: What’s the concept behind this insurance product idea that sparked this whole thing? Is it similar to a covered-call strategy?
Bond: A better way to think about it is as a one-year commitment. You get the upside of the S&P 500 Index up to a cap, and you’re protected for the first 15% drawdown in the market over that period. But you have to hold it a year to get that return. After that, it resets and you own the fund for the following year, and it does the same thing each year. What changes about the fund is that the cap will move. It's different than a covered-call strategy in that it really gives you a defined outcome.
What's attractive about that is that when you invest in equity markets, you really don't know what you’re going to get, and you have no way of protecting yourself. We insure everything: our car, our life, our house. But there's no easy way to insure a most important asset: our capital. This gives you some protection on the downside.
ETF.com: Is this an idea that’s in registration right now?
Bond: It is. It's not approved yet. But we’re very hopeful that sometime in April we'll be able to launch the funds.
ETF.com: As an issuer, what's different now from when you started PowerShares?
Bond: The biggest difference in the industry is that there's a lot of competitors and a lot of products, and that's the reason it's important to focus on products that are really unique. We talk to a lot of people who want us to work with them on products, like smart beta, or products that are just a little smarter than the other guy's, but we can't work on those things.
It's a very difficult and expensive process to try to educate everyone on, “Mine's a little better than the others because mine does it this way.” People really just aren't interested. What they're interested in is getting exposure they want that they don't already have access to, or in unique ways of getting certain exposures.
ETF.com: Larger firms like John Hancock or Franklin Templeton seem to have more opportunity to go for core areas than, say, smaller firms just entering the space. Does that make for a completely different competitive environment?
Bond: Those guys have a lot of resources and they're big organizations. But we’ve seen ETF companies that’ve been started by big firms that haven't garnered any assets. How you pick and choose the things you focus on, regardless of how big a firm you have, is crucial. Product choice and execution is very important. Whereas, you see some very small companies that bring out something that people are really interested in, and all of a sudden they garner a tremendous amount of assets.
The bigger companies have trouble being as nimble as the smaller companies. They do have more resources to be able to go after some core areas, but they have to tell their story on why their core is better than somebody else's core, and they've been telling those stories for a long time, because in the mutual fund world, everybody has large-cap growth.
In the ETF world, it's more difficult to do that, because it's not that they're all hidden under sheets where it's hard to identify; it's all out there. It's easy to decipher which ones are worthwhile and which ones aren't.
ETF.com: How have investors changed since you launched PowerShares?
Bond: There's been massive change. When we launched PowerShares, investors didn't know what ETFs were. One of our greatest challenges was educating them on the SPDRs and the Q’s; those are ETFs. They knew what exposure they got with ETFs, but they didn't really understand what they were.
Then, the first PowerShares launched were really smart-beta index ETFs. We had to explain what an Intellidex was and how it works—an index that uses quantitative analysis to give you a better index. That was 2003.
The great thing today is ETFs have been adopted by so many, that advisors fully understand what an ETF is and how indexing has expanded. We don't have to explain those things as a new issuer. Now we can focus on the product and what the product delivers, which is good for us.
Contact Heather Bell at [email protected]
