At Tidal … The ETF Masters: Launch, Manage, and Grow Your ETF. We are an award-winning, full service ETF platform managing 183 ETFs in partnership with 68 issuers and responsible for $29bn+ AUM. Build Your ETF.
At ETF Architect … Want to easily create an ETF? Build, launch, and manage it with us. An Affordable, Turnkey, and Transparent White Label ETF Platform. Learn how we’ve helped innovative firms create new ETFs, convert separately managed accounts (SMAS), mutual funds, and hedge funds into ETFs, and tap the power of our platform to lower costs and streamline operations for existing ETFs. Create Your ETF. (Here’s an excellent presentation.)
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These firms have each likely leveraged their experience in creating their own ETFs. I know that for a fact with ETF Architect, which is run by Wesley Gray and the good folks at Alpha Architect. They then offer other money managers the opportunity to bring innovative investment strategies to market, but without those managers needing to establish their own advisory firm or registered investment vehicle.
So, in principle, some really smart people who just want to focus on their strategies and not the administrative and marketing aspects of the ETF marketplace have a “turnkey” channel to do so.
On the other hand, as we start the new year, there are about 3900 ETFs offered in US markets, or 100 more than a month ago and 600 more than a year ago. Like wineries in the Paso Robles region of California’s central coast, anybody that can start a winery does. How many wineries do we need? As can be inferred from the graph below, if the launch trend continues, the number of ETFs will exceed the number of mutual funds in 1 to 2 years. How many ETFs do we need?
Morningstar reports that in 2023, while 400 active ETFs were launched, 100 closed, or 25%. The average life span for an active ETF was less than 3 years, about half as long as passive ETFs. Clearly, the competition is fierce, and unlike family wineries which run more on pride than profit, ETFs will close if they fail to attract assets under management. I suspect the ETF failure rate will only increase given the low cost of entry. And what happens when a fund closes? As Schwab reports, a failed ETF is more of an inconvenience than a significant risk. Perhaps likened to a called bond. But between possible tax implications and price-to-NAV spreads given a run on an ETF, I suspect it’s not something any investor wants to experience.
Another aspect of the burgeoning ETF market is understanding who is actually responsible for the strategy? While Empowered Funds LLC is listed as “The Advisor” for all 63 Alpha Architect ETFs, the investment team proper only manages eight (all with Alpha Architect in their fund names). Similarly, the management company, city, and state all show “Empowered Funds LLC, Havertown, PA.” But the people actually behind these strategies are diverse: from Bridgeway to Research Affiliates to Cambria. What to call these folks varies as well. Sometimes they are called “subadvisors.” Sometimes “sponsors.” Sometimes “affiliates.” Sometimes there is no name or firm at all! Until you dig into EDGAR filings.
Ditto for the consolidating mutual fund market. When Natixis buys up Oakmark, but does not rebrand the funds Natixis, should the “Fund Family” be called Oakmark or Natixis? Ditto when Franklin Templeton buys up BrandywineGLOBAL, Clarion, ClearBridge, George Putnam, K2 Alternative and Martin Currie. Or when AMG acquires Harding Loevner, Parnassus, SouthernSun and Tweedy Browne.
Many fund houses established in the 1980’s, 1990’s, and 2000’s have already or are indeed being acquired. MFO actually maintains its own fund names list to help distinguish who owns whom, but as you can see it’s increasingly difficult to keep track. At the end of the day, MFO tries to help investors and advisors distinguish which funds or fund families are standouts, mediocre, or to be seriously avoided. David often states that 80% of funds could disappear tomorrow and nobody, except the fund managers, would notice. They are either redundant or inefficient or both.
To help better decipher, perhaps just a little, we’ve revamped the fund naming and fund family methodology on MFO Premium to try and focus more on the people implementing the strategy and not the ultimate owner or parent. We’ve also added “Fund Parent” and “Fund White Label” in addition to already established “Fund Family” and “Fund Subfamily” (e.g., Virtus KAR and Morgan Stanley Counterpoint Global) metrics to MultiSearch, our main search tool, and the MFO Fund Family Scorecard.