The number of US exchange traded funds has passed the 2,000 mark, as providers churn out an array of increasingly esoteric products that target investment “themes” from evangelical values to entrepreneurship and marijuana — with a Trump ETF possibly waiting in the wings.
Passive investment funds have continued to suck in record amounts of money this year, despite the improving performance by traditional asset managers. Globally, ETFs have taken in another $87bn this year, smashing the old record for the two first months of the year, with $60bn going into US-listed ETFs.
While the “Big Three” ETF providers — BlackRock, State Street and Vanguard — have been locked in an intensifying price war to fight for flows, smaller providers have turned to niche, thematic ETFs that invest in companies that benefit from ageing demographics, obesity, millennial spending and even the growth of drones.
Inspire Investing this week rolled out two “biblically responsible” ETFs — which, among other things, controversially exclude companies that actively support lesbian, gay, bisexual or transgender rights. This took the total of US ETFs to 2,003, according to the data provider Morningstar.
“There’s huge demand for low-cost investing aligned with biblical values,” Robert Netzly, the chief executive of Inspire, told the FT. “We love our neighbours in the LGBT community, but our investors want to invest according to conservative values.”
Conservative values seem to mostly involve heavy industry. The biggest constituents of the bespoke, biblical indices that Inspire’s ETFs track are largely energy and steel companies, and the third-largest constituents of the small companies index is CoreCivic, formerly Corrections Corporation of America, one of the country’s biggest private prison operators.
Other providers have focused more on economic themes. Global X Funds, an ETF provider partly owned by JPMorgan Asset Management, last month launched a vehicle that tracks and invests in founder-run companies.
I don’t know what exactly it would look like, but a lot of people are talking about [a Trump ETF]
There are more thematic vehicles coming. ETF Managers Group, a company that creates and manages passive vehicles for other providers, last month filed plans with the Securities and Exchange Commission to launch an ETF targeting the medical marijuana and industrial hemp industries, which will be more neutrally named the “Emerging AgroSphere ETF”.
Providers often try to use stock market tickers that reflect their themes, and the Global X ETF goes by BOSS, while the flagship biblical ETF trades under BLES. The marijuana ETF has yet to get a ticker, but HIGH is available.
ETF Managers Group has also registered the website www.donaldtrumpetf.com, hoping that a fund management group can be enticed to launch an ETF that invests in companies that might benefit from policies enacted by President Donald Trump’s administration.
“We don’t have anything planned right now, but that could change,” said Sam Masucci, chief executive of ETF Managers Group. “I don’t know what exactly it would look like, but a lot of people are talking about [a Trump ETF].”
Nonetheless, there are signs of the industry slowing down somewhat after its breakneck growth and innovation. The number of US ETF launches fell from 283 in 2015 to 250 last year, even as the number of liquidated funds reached a high of 121, according to Morningstar. A further four have been put down this year.
Most analysts and industry insiders expect the pace of ETF creations to decelerate and the ETF graveyard to swell in the coming years, but argue that this is a sign of maturity, as passive investment providers take a harder look at their stable of ETFs for runts to cull.
“The field is certainly getting more crowded and it’s harder to find something new,” said Mr Masucci. “The industry is getting more selective, which is a good thing.”
Sample the FT’s top stories for a week
You select the topic, we deliver the news.