'White label' firms help managers jump into the ETF market

Thu Apr 24, 2014 2:30pm EDT
 
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By Ashley Lau

NEW YORK, April 24(Reuters) - While a handful of big players have long dominated the exchange-traded funds market, more smaller players are elbowing their way in, thanks to the growth of "white label" ETF companies that will build and launch ETFs for a modest fee and a share of the profits.

For less than $100,000 in startup costs, any aspiring fund manager with a bright idea can get a custom ETF brought to market in as few as three months. The white label firm will line up the regulatory approvals, provide a board of directors, and get the ETF listed and trading. The fund's inventor gets to name the fund and start profiting as assets grow.

With more than 30 ETFs launched since 2011, and at least two dozen more in the pipeline, companies like Exchange Traded Concepts in Edmond, Oklahoma, AdvisorShares in Bethesda, Maryland and ETF Issuer Solutions Inc in New York are breaking the barriers to entry that had protected big fund firms from small competitors. They have attracted hedge fund managers and serious investment hobbyists and foreign asset managers who have plan designs or want easy access to U.S. investors.

They may be a sign of the democratization of the investment world, or possibly of froth in the $2.4 trillion global ETF market, or both. But analysts expect them to continue growing.

"That really is the allure - that anybody with a good idea can make it happen," said Dave Nadig, chief investment officer of San Francisco-based research and analytics firm ETF.com.

PROFILE OF A LAUNCH

Typical is Santa Barbara, California-based Frank Tobe, who, after investing his own money in robotics stocks for more than a decade, decided early last year that he wanted his own ETF.   Continued...