Market Absurdity Squared: There Is Now An ETF ETF
ETFs and the industry have experienced significant growth over the past five years, as their assets have grown in the U.S. from $1.2 trillion to $2.7 trillion; the number of U.S. ETF sponsors has increased from 45 to 78; and the average ownership of U.S. equities by ETFs has more than tripled. 1
The Index is overseen by an Index Committee made up of industry veterans, including Mike Venuto, CIO of Toroso Investments; Guillermo Trias, CEO of Toroso Investments; Linda Zhang, Founder of Purview Investments; Kris Monaco, Founder of Level ETF Ventures; and Kevin Carter, Founder of Big Tree Capital. This group has decades of ETF industry experience covering a range of functions including index creation, ETF portfolio construction, investment management, distribution, research, trading and more.
“Not only are we seeking to capture the performance of the industry, but we’re also looking to bring together many of its leaders to leverage their authority as we monitor, research, and benchmark the category’s potential future growth,” said Trias, who created the concept and the idea behind the ETF.
“We have deep roots in the ETF ecosystem and have created an Index that captures the dynamism of ETFs and the disruptive innovation they have brought to the financial services industry,” said Venuto.
“Clearly, investors and advisors now understand the benefits of the ETF structure, including improved liquidity, tax efficiency, and increased transparency. But while they’ve been able to incorporate those benefits into their portfolios, they have not had opportunities to participate in the growth of the ETF industry itself. That is an issue we’ve solved with the launch of the Toroso ETF Industry Index and TETF,” Venuto said.
The Index, maintained by Solactive AG, is designed with four tiers of constituents:
Tier 1, 50% of the Index’s exposure, is made up of companies with substantial participation in the ETF industry, providing direct financial impact to shareholders, including BlackRock, Charles Schwab, Invesco, State Street, WisdomTree, and more.
Tier 2, 25% of the index’s exposure, is made up of companies with substantial participation in the ETF industry, providing indirect financial impact to shareholders, including KCG Holdings, NASDAQ, Intercontinental Exchange, Inc., and more.
Tier 3, 15% of the Index’s exposure, is made up of those companies with moderate levels of participation in industry, including Bank of New York Mellon, US Bancorp, FactSet, Ameriprise Financial, and more.
Tier 4, approximately 10% of the Index’s exposure, includes companies that are new or participating in a smaller way in the ETF industry relative to their overall focus, and includes such names as Morningstar, Eaton Vance, Goldman Sachs, Legg Mason, Citigroup, and more.
“The ETF industry is more than just a list of fund sponsors, and this Index is designed to include the full range of participants,” continued Venuto. “It is also aimed toward capturing not only the established leaders in each area, but also those firms that might be new to the space but which are bringing exciting approaches that could resonate with investors and drive further growth of the industry itself.”
The Toroso ETF Industry Index has been licensed to Exchange Traded Concepts, the advisor to TETF. The fund begins trading on April 20th on the NYSE and will be the first ETF to provide this type of targeted exposure to the universe of companies participating in the growth of the Exchange Traded Fund category.
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So is this all becoming just a little too self-reflexive? And how long until liquidity problems force the creation of an ETF ETF ETF, and so on ad absudrium? For the answer keep an eye on the assets contained in TETF: if it took sees a surge in assets under management, the current generation's CDO2 will be officially born.