If you build it, will they come?
In April 1989, the movie Field of Dreams starring Kevin Costner was released to coincide with the start of baseball season. The movie earned acclaim as one of the best baseball movies of the last 30 years – and left us with the memorable line “if you build it, he will come.” The phrase referred to the main character’s dream that if he built a baseball diamond in his corn field, legendary ballplayers would emerge out of the mists of time to play games in his ballpark. Just the same, over the last three years there have been many investment firms that have believed the ETP industry was a new field of dreams. Just build an ETF that captures your best investment ideas and the investors will come.
However, now that the number of ETFs in registration has soared past 1,200, the competition for investment dollars and market makers’ attention has created a less favorable playing field for would-be ETF issuers. There are fewer openings for “first-mover” ideas and those that help bring ideas to market are forced to demonstrate to market makers and seed money providers that there will be enough interest in their products to get out of seed and create a profit upside in making a market.
All this explains the rapt attendees of the Spring ETP Forum’s “New to Market” panel discussion, as the audience was eager to hear the secrets of how issuers behind recent successful product launches made it happen in this tough environment. Moderated by Steve Malafronte of Recon Capital Partners, panelists Jay Rhame of Reaves Asset Management, Conor Platt of Etho Capital, Andrew Chanin of PureFunds and Nick Cherney of Janus Capital Group discussed how they were able to overcome industry challenges and launch successful niche ETFs.
- Innovation. When looking to corner niche sectors within the market, ETF strategists and issuers need to recognize the importance of innovation and research. Andrew Chanin, CEO of our client PureFunds, noted that when developing a new product, he considers sustainable ideas as opposed to gimmicks. He also added that the success of his ETF launches hinged on the efforts of outside research experts. For example, before the recent launches of their two niche ETFs tracking the video game technology industry and the Reality Shares Drone Index, he enlisted researchers with extensive knowledge of these industries to help pinpoint companies that would fit into the ETFs’ buckets. Additionally, each of these unique ETFs brought something new and different to the marketplace that investors wanted to capitalize on.
- Strategy. While innovation and research go a long way, success will not be found without a well-thought out marketing, media, distribution and operations strategy in place. When the PureFunds ISE Cyber Security ETF hit the market, the team at Gregory FCA was prepared to support the launch with targeted outreach. These efforts have continued long after the initial buzz by piggybacking on breaking news surrounding developments in the cybersecurity space in real time. Additionally, issuers should identify pre-launch sources of seed capital to ensure the launch goes smoothly and to help plan for first-year revenues and expenses. As noted in a previous post, volume begets more volume in the ETF world and is a sign for investors that there is value in their investment.
- Take a risk. No matter how much planning goes into an ETF launch, there is no guarantee that everything will work out perfectly. No one can predict how markets will react on any given day, which in turn can sway investor interest. Increased regulations and product innovations may hinder success, but it’s important to remember that without risk there is no reward.
In short, an innovative idea and a proper strategy are key ingredients in the recipe for a successful ETF launch. In order to ensure success and reach the ETF field of dreams in today’s competitive environment, ETF issuers must realize that their success relies on the steps they take prior to launch and be ready to take a leap of faith.
This post is a collaboration between Joe and another member of the Gregory FCA team, Jess Emery.
For more from this year’s Spring ETP Forum, check out our Storify below.