One common question for ETF investors is why there are so many new ETF’s hitting the market. Just take a look and you will see that despite that despite the fact that there are over 1400 ETF’s already trading on US markets, almost every day sees new ones hit the markets. As I write this post, I see over 20 new ETF’s that started trading in the first 10 days of February alone. What types of ETF’s?
Race To Be First
In the ETF space, it certainly seems as though the first to land a product gains a major advantage. Look at almost any type of ETF and you will see that the bigger fund is usually the oldest one as well. There are over 10 ETF’s that track the S&P500 but the biggest one (by very far) is SPY which was the first one created. There are multitudes of examples like that. There are exceptions of course like EEM which is no longer the biggest emerging markets ETF. But that took many years and a competing ETF that charged less than half of the fees to get there (VWO). As you can imagine, issuers are very much in the battle to gain assets. Why? Bigger ETF’s are more assets under management end up meaning:
-Economies of scale
-More brand recognition
It’s a no-brainer so you can imagine that ETF issuers are doing their best to launch the first of each type of ETF. But after 1400 ETF launches, what categories could possibly not be covered? It seems like these days issuers are looking into sub niches. For example, iShares already had many country ETF’s such as Canada (EWC) and others but it just recently launched a small cap Canadian ETF (EWCS). Another example is iShares launching EEMA (Emerging Markets Asia) as a sub-ETF to EEM (Emerging Markets). Clearly, many of these ETF’s are trading products much more than buy and hold ones. I personally believe that a good long term retirement portfolio should hold a maximum of 10-15 ETF’s or so….
Easy To Get Distracted
The overall theme is that while it’s tempting to start looking into adding dozens of new ETF’s and begin trading actively, the long term success of a retirement portfolio requires a much more passive approach.