It was only a matter of time before someone created an ETF to track the ETF industry. With last Thursday’s introduction of the ETF Industry Exposure & Financial Services ETF (TETF), that time has come. The event prompted multiple reactions, including “what took them so long?”, “are there really enough ETF stocks for an index?”, and “isn’t this just another gimmick ETF?”
The ETF Industry Exposure & Financial Services ETF (TETF) describes itself as providing access to the companies driving and participating in the growth of the exchange-traded funds industry. TETF will seek to track, before fees and expenses, the price and yield performance of the Toroso ETF Industry Index, which is designed to provide exposure to the publicly traded companies that derive revenue from the ETF industry. This includes ETF sponsors, index and data companies, trading and custody providers, liquidity providers, and exchanges.
What took them so long? Well, for starters, there is only one “pure play” publicly traded company in the ETF space—WisdomTree Investments (WETF). The firm launched its first ETF in June 2006, and ETFs are its only business. WisdomTree currently has 88 U.S.-listed ETFs with about $42 billion in assets under management, and it is starting to venture into foreign markets where it manages another $1.3 billion.
So yes, it would appear there are not enough pure play stocks to create an index, but there are enough companies with substantial stakes in the ETF space to create an index of the growing industry. The Toroso Index Committee had the foresight to recognize and accommodate both this somewhat limited current state of the industry as well as the unknown evolutionary path that lies ahead. For these reasons, it uses a tiered methodology that can dynamically shift toward the companies with the most ETF-related revenue in the future. TETF intends to evolve along with the ETF industry.
