ETFs: Golden Goose or Golden Glut?

ETFs: Golden Goose or Golden Glut?

ETFs and other Exchange Traded Products are among the hottest topics in today’s investment universe. The prize? A 2015 survey PwC survey revealed that asset management firms expect global ETF assets to grow to a $5 trillion by 2020, and $7 trillion by 2021. But even if demand proves to be as robust as predicted, investment firms will face growing headwinds in their efforts to seize the opportunity. There’s a lot of competition out there already, and the list of players is growing. Some of the biggest marketers in the ETF space, including BlackRock and Schwab, have recently cut their fees, a trend that will squeeze everyone’s margins and make it especially difficult for smaller firms. According to the Financial Times, about 70% of ETFs worldwide have less than $100 million in assets, considered the minimum break-even level.

It’s Getting Awfully Crowded Out There
At the end of 2015, there were approximately 6,100 ETFs globally, with almost 1,600 in the U.S. alone. By midsummer 2016, an additional 132 US funds were competing for investors’ assets. Morningstar’s Ben Johnson observed “The asset management industry has blasted its spaghetti cannon, with investors playing the role of the wall.” There may be a lot of potential out there, but “let’s see what sticks” isn’t a marketing strategy likely to tap it.

For investment firms that aren’t in the ETF top 5, the challenge can be especially daunting. You don’t have the product line or the marketing budget to go head to head with the big dogs, so how can you stand out from the clutter? Do you focus on niche ETFs (Global Fishing ETF anyone?), hoping to pick up assets on the outer edges of investors’ portfolios? Do you focus on concepts like smart beta, betting on the promise of a better index?

For most firms, the allure of a unique product is strong. At first glance, it may seem to be the most promising way to stand out, and if you truly have a unique product, it gives you a strong marketing platform. But developing exchange traded products that lie at the intersection of unmet market need and your own firm’s capabilities is a tall order. In the real world, the odds are that you’ll end up marketing a line of ETFs that aren’t radically different from competitive offerings.

So What’s Your Plan B?
To develop a strong ETF marketing strategy, your product line may not be the best place to start. It may be more productive to look at your company – your capabilities, people and culture.

Why do people do business with you, whether they’re institutional investors, RIAs, or individuals? Why do they choose your firm over others, even though your investment products may not be radically different? The answers to these questions may provide important insights for successfully marketing your ETFs.

Performance Is Important, But…
Performance is important, of course, but anyone who’s been in the business more than a few years will tell you that performance is only part of the purchase decision – price of entry, perhaps, but not the final determinant. There are other factors that carry just as much weight, factors that can also help carry your client relationships through the inevitable periods of below-five-star performance. Those factors vary from firm to firm, but they can include your people, the quality of the service you provide, trust, the quality of your research, and your reputation for analysis and expertise.

Think of your ETF line in the context of your broader client relationships. What role can those ETFs play in helping them achieve their goals? How do they complement your other products, and the expertise and advice you provide? Your ETF value proposition lies not only in the product, but also in who’s offering it.

If you’ve got superior performance and a distinctive ETF product, great – tout it. But don’t overlook the importance of your other attributes. They can provide a foundation for your ETF marketing plan, and can be expressed as part of product positioning and messaging.

In future posts, we’ll offer more thoughts on how to stand out in the increasingly crowded ETF environment, and on the marketing communications tactics that can help you get your message through to your target audience.

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