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Is the $2 trillion ETF industry in consolidation mode?

Stephanie Johnson

Investor Update: New York Life to enter the $2 trillion ETF market (Part 2 of 10)

(Continued from Part 1)

Janus Capital joins ETF industry

In a recent bid, the largest US mutual life insurance company, New York Life Insurance Co., sought to acquire ETF provider IndexIQ to enter the ETF space. The deal underscores the urgency felt by asset managers to join the fast-growing $2 trillion ETF industry.

The year has already seen Janus Capital Group (JNS) joining the exchange-traded fund industry. Plus, Eaton Vance Corp. (EV) received regulatory approval by the Securities and Exchange Commission (or SEC) to launch nontransparent, actively managed ETMFs (exchange-traded managed funds).

Consolidation in ETF space

With the increasing number of banks and asset managers entering into ETFs by taking over smaller, existing players, the industry for ETFs seems to be in consolidation mode.

In such a situation, smaller niche players such as WisdomTree Investments, Inc. (WETF) can be next in line to serve as targets of such acquisitions. WisdomTree Investments, through its subsidiaries, operates as an ETF sponsor and asset manager. It offers ETFs in equities, currency, fixed income, and alternatives asset classes. The WisdomTree Japan Hedged Equity Fund ETF (DXJ) and the WisdomTree International Hedged Equity Fund ETF (HEDJ) have the highest assets in the WisdomTree ETF stable.

Is ETF industry consolidation in the cards?

By the second quarter of 2014, the ten biggest asset managers in the ETF space held roughly 75% of industry assets compared with 67% a year ago, according to a Morningstar study. The ETF industry is becoming more top-heavy, with smaller firms either dropping off or being acquired by larger sponsors.

We’ve already seen the parent company of VelocityShares being acquired by Janus Capital Group (JNS) in October 2014, and IndexIQ is set to be acquired by New York Life Insurance Co. However, only time will reveal how long it will take for the industry to actually reach the point of consolidation. Signs of an ETF industry consolidation may become clearer as more asset managers continue to join the pack.

Continue to Part 3

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