Custom-Tailored ETFs: A Rising Phenomenon

ETF Trends

Although the pace of new exchange traded product launched moderated a bit last year, nearly 150 rookie ETFs and ETNs debuted last year. Several have already launched in 2014, indicating the competition for investors’ affection, attention and dollars among new funds remains intense.

Right or wrong, there is a burden on new ETFs to rapidly hit the $100 million in assets under management mark to validate their existence to some industry observers. Issuers are skirting the beauty pageant judgment by launching an increasing number of ETFs and ETNs custom-tailored for a specific client and that effort usually means  the product launches with an impressive assets under management tally.

“Bespoke ETFs built at the request of one specific investor — a money manager, a major financial adviser or a pension fund — are a rising trend. Nothing wrong with the big guys taking advantage of ETFs,” writes Brendan Conway for Barron’s.

“With seed capital more difficult to come by as banks have become more constrained in allocating balance sheet, we saw many products launched with a large, specific end-user. In fact, many of the largest successes in 2013 were due to such an approach,” according to part of a Credit Suisse note obtained by Barron’s.

Some so-called bespoke ETPs that launched last year include the Barclays ETN + Enhanced Global High Yield ETN (FIGY) and the Barclays ETN + FI Enhanced Europe 50 ETN (FEEU) . Developed for Fisher Investments, FIGY and FEEU had over $2.2 billion in combined assets as of mid-December. [Some New ETFs Are Off to Fast Starts]

The iShares MSCI USA Momentum Factor ETF (MTUM), iShares MSCI USA Size Factor ETF NYSEArca: SIZE) and iShares MSCI USA Value Factor ETF (VLUE) were launched by BlackRock at the request of the Arizona State Retirement System and each ETF was seeded with $100 million in capital.

Those funds have proven popular on their merits as MTUM has $202.3 million in assets while SIZE has nearly $121 million in AUM. VLUE has nearly $128 million in assets. [Another Look at ETF Industry Growth]

iShares MSCI USA Momentum ETF

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mtum

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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