New players are set to flood Australia’s exchange-traded fund (ETF) market in 2012, with the competition for market share to become tighter, according to findings from privately-owned ETF firm ETF Consulting.
“The Australian ETF Outlook March 2012” report said the “rainbow of products” would be expanded considerably in 2012, with new issuers to play a considerable part.
“There’s going to be more products from the current issuers, but there’s going to be two kinds of issuers emerging,” ETF Consulting principal Tim Bradbury said.
The first type of issuer would be brand new to the ETF market and would effectively look like an asset manager, Bradbury said.
“The other form of issuer will be a little left-of-field,” he said.
The Digga Mining Fund ETF (DGA), issued about a month and a half ago, was issued by an entity not recognised as a fund manager and while it was a financial services player, it certainly was not an ETF player, he said.
“It’s taken the view that it can custom-run an index but have outsourced all calculations to an expert like S&P (Standard & Poor’s),” he said.
“It’s entered into the ETF category with an innovative product offering in terms of index without all the infrastructure of a massive global player.”
Advisers would strongly consider such issuers when the ETF on offer was not being provided by the current players, he said.
“If you think about resources and mining and how to tap into that, DGA is an interesting ETF offering [as] it’s somewhere between a commodities and a tailored index and we’re going to see more of these offerings,” he said.
“If there aren’t good ideas being brought to market by the big players, there’s an opportunity for someone to get in there and grab some [market share].”
The emerging issuers would most likely focus on tailored index ETFs, currency, commodities and fixed-income ETFs and would definitely push into the synthetic ETF space, he said.
In addition, having the biggest funds will not necessarily secure an issuer’s ETF market share, but rather the ability to answer market demand.
“In ETF markets, those who move early [with new products] tend to retain the lion’s share of the assets and that’s often because they provide funds that are in the core parts of portfolios,” Bradbury said.
“If you think about what the big players have done, they’ve rolled out a lot of what’s worked well around the world and that’s fine, but once there’s a different demand locally, there’s an opportunity for an issuer to get in and get some assets.”
