The race for asset managers to launch and gather in money for new ETF offerings is reaching a crunch point and time is running out for any groups which are yet to launch in the space, suggests Hector McNeil, co-chief executive at ETF white-label provider HANetf.
McNeil suggests any putative providers have three years at most to get ETF products off the ground before the competitive landscape becomes closed to any new offerings.
HANetf is a white-label provider launched by McNeil and co-chief executive Nik Bienkowski which is believed to be on the cusp of announcing its first partners.
“An ETF is just a piece of technology which has streamlined the investment process, and essentially digitised investing,” McNeil said. “However, this piece of technology is increasingly important when it comes to distribution, and unless asset managers start to implement such solutions within the next 36 months, it may be too late for them.”
The rush to get in on the ETF rush has picked up the pace in recent years as growth in passive funds is now far outstripping active funds not only in the US but also in Europe.
The market has seen a large number of M&A deals in recent years in Europe and the US as providers either buy their way into the market or bulk up as competition increases at the top end.
With such a backdrop, the opportunity for an ETF to gain both investor attention and funds momentum is tough and getting tougher, says McNeil. Getting the point of sustainability is an ever more uphill task and gaining traction might soon be out of reach for many.
“It can take two to three years to get traction in an ETF, and so if asset managers have not launched these solutions by 2021, they could struggle to get them off the ground,” he said.
He added that asset management groups have HANetf they are holding back from creating an ETF strategy because they “fear cannibalising existing funds” or worry about costs and the potential for new offerings to get lost in the current flood of offerings.
When it comes to the opportunities that are open, McNeil believes that specialised strategies offer the best opportunities for new market entrants.
“There is no monopoly in active ETFs built around specific products at the moment, so that is an opportunity for asset managers, and the cannibalisation and cost points are also often overstated,” he said.
McNeil added while it made little sense launching products where price and scale were the only factor – such as FTSE 100 trackers – there was a much wider business case for launching other products.
“The fact is if they don’t have a solution in this space soon, someone else will take their slot, so they need to consider how best to approach this growing market, especially as the way people invest is changing, becoming more suited to ETFs than legacy products like mutual funds.”