An ETF for the ETF Industry?
It was only a matter of time before someone created an ETF to track the ETF industry. With the introduction of the ETF Industry Exposure & Financial Services ETF (TETF), that time has come, explains Ron Rowland, fund expert and editor of Invest with an Edge.
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.
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.
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.
The Index places companies into tiers according to the significance of their revenue exposure to the ETF industry. It currently has 37 constituents in four tiers.
The top tier is composed of companies whose ETF industry participation is substantial and results in direct financial impact to shareholders.
This tier receives a 50% allocation and currently has eight stocks receiving nominal weightings of 6.25% each.