Exchange-traded fund providers are broadening their institutional offerings to more niche strategies in hopes their products will be used by money managers in institutional separate accounts and commingled funds.
Among the strategies recently introduced or expected by sources to be introduced in the next few years are those focusing on environmental, social and governance investing, along with expanded offerings in emerging markets, high-yield and alternative fixed-income strategies.
Along with those strategies, sources said there are other ways managers are looking to build the use of their ETFs among institutional investors:
- as a tactical strategy in separate accounts that have high inflows and outflows;
- as a way for liability-driven investment managers to transition assets when pension plan assets reach certain glidepath triggers; and
- as a replacement for futures.
The aim, said Lesley Keefe, executive director, Americas asset management advisory leader, EY, Boston, is not to mimic the offerings of giant ETF providers BlackRock Inc., Vanguard Group Inc. and State Street Global Advisors.
"Anyone not part of the big three, it's all about differentiation." said Martin Kremenstein, senior managing director, head of retirement products and ETFs at Nuveen, New York. Nuveen, which began its ETF business in September 2016, has $450 million in ETF assets.
Ms. Keefe added: "When you think of product proliferation, that's where the growth has been. The big three have dominated, but others are trying to figure out how to get some of that business. That's where product innovation comes in. For ETFs, it's all about an innovative product — currency, geographic, proprietary benchmark, country specific. But whatever kind there is, they have to amass assets quickly. That's what makes or breaks new ETFs. The big three have speed to market, product channels, distribution. The next tier can be successful in building those; but smaller, new firms targeting ETFs, it's much tougher."