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Monday, June 11, 2012

"Big Dogs" Gathering Around ETFs May Mean a Fight

News summary by MFWire's editors

ETF industry insiders wonder if consolidation is coming. In a Barron's roundtable discussion with three top ETF executives, ETF Database director and co-founder Michael Johnston said that "there are a lot of big dogs gathering around the perimeter of the ETF industry, waiting to fast-track their way in."

Barron's sat down with IndexIQ [profile] founder and CEO Adam Patti, PowerShares [profile] global ETFs managing director Ben Fulton and ProFunds [profile] CEO Michael Sapir to talk about the state and future of the ETF business, particularly on the alternatives side.

ProFunds' Sapir offered some insight into how he and his team come up with new products.

"We don't try to build a field of dreams," Sapir said. "We don't develop a product and then try to convince the whole world they need it."

"Early in the ETF industry it really did seem like people were going out into a cornfield in Iowa, hearing a strange voice tell them that if they build it investors would come," ETF Database's Johnston added. "But they didn't."

"There are a couple of sponsors that still like to launch what I call the fling-and-pray strategy," agreed IndexIQ's Patti.

The three ETF execs offered different takes on minimum asset levels needed to keep an ETF around. Patti put the figure at $20 million to $25 million for domestic ETFs and $30 million for international ones. PowerShares' Fulton said that an ETF "is off life support" once it reaches $30 or $40 million. And ProFunds' Sapir said that he and his team have "never shut down an ETF," as they're willing to gamble on smaller ETFs thanks to the success of bigger ones. 

Edited by: Neil Anderson, Managing Editor


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