ETF expert and financial advisor outline why ETF and other fund issuers like to say they’re ‘first’ with a new strategy
The phrases ‘first in Canada’ or ‘first of its kind’ aren’t usually that far away when a fund manufacturer announces the launch of a new product. This has notably been the case in ETFs where a number of new strategies appear to be launching each year. But why do ETF issuers try to brand their product as the first on the market, and does that first mover advantage actually result in better inflows?
Deborah Fuhr, managing partner and founder owner of independent research & consultancy firm ETFGI outlined some of the marketing logic behind the claims of ‘first.’ She explained, too, that in certain cases the first mover advantage has been significant enough for other funds to pursue that same angle.
“Everyone's looking for an angle to get someone to write about it. If you just say, ‘I've launched the fifth S&P500 ETF,’ is anyone going to write about it?,” Fuhr says. “I think it's the same mentality that people want to show they're innovative, that they're doing something new and different.”
Fuhr explains that for a number of the biggest ETF products there has been a significant first mover advantage. Many of the largest S&P 500 tracking index ETFs in the US market, for example, were the first funds launched. Fuhr notes the example of GLD, a US gold-tracking ETF managed by SPDR, which was the first ETF to track the price of gold on the US market. Despite competitor ETFs being launched with significantly lower fees, GLD has held in as the largest ETF in its category, with over double the AUM of its next-closest competitor. The compliance hassle, sales fees, and overall operational difficulty is often enough to create inertia among ETF investors who went into the first fund launched.
Where the first mover advantage may not be so clearly demonstrated, however, is in the more niche segments of the market that now tend to see more launches. Few issuers are offering new versions of low-cost index ETFs, as that market is already well served by established players. Instead, Fuhr explains, smaller issuers are launching products targeted at niche markets. That space is so competitive that any marketing angle or established claim to innovation can carry weight, hence the propensity to claim being first.
“You don't really see BlackRock, Vanguard, or BMO making as much of a big deal of the first because they're the big boys,” says John De Goey, portfolio manager with Designed Wealth Management. “Once you get past the big three or four issuers, the other two dozen struggle for the remaining twenty per cent market share. These smaller players are doing everything they can to differentiate themselves, and they will say anything they can to make them appear to be innovative, to be cutting edge, to be bringing something to market that is presumptively of value.”
De Goey offered an advisor’s perspective on the phenomenon. He outlined how he and other advisors can assess fund launches and claims of ‘novelty’ and ‘uniqueness’ in a way that best serves clients. He argues that claims of uniqueness are largely a marketing spin and one that, in his opinion, serves to pull advisors back towards more of a sales role than the goal of working as professionals.
While De Goey typically greets claims of a ‘first in Canada’ strategy with some skepticism, he has seen ETFs launched that were genuinely new, accretive, and innovative. The trouble, as he puts it, is that “the low hanging fruit has all been picked.” New asset classes like liquid alternatives and cryptocurrency are being brought to market in vehicles that advisors can more easily use, however he takes issue with claims that these products are truly ‘unique,’ as they often have some comparator or corollary that would invalidate the use of that specific term.
Fuhr adds that much of the marketing push towards uniqueness or novelty stems from a changing dynamic in the way advisors and fund producers relate to one another. Social media plays an outsized role now, and online traffic matters crucially to gain both advisor and DIY investor attention for a particular fund. Key words matter in this ecosystem, and marketing professionals are always looking out for the terms that will get them ranked high on a google search or noticed by an AI large language model.
In assessing something marketed as new, De Goey begins with his Know Your Product (KYP) obligations. Through that process he seeks comparison products with similar mandates. He notes that if there is a comparison then the product can’t really be called ‘unique.’ He can then assess factors like currency hedging, covered calls, or performance against benchmarks to determine if the strategy adds value for his clients or not. He takes a close look at cost, too, and observes that many of the newer and more niche products being launched now come with higher costs.
“Most people intuitively assume that things that are new, innovative or different are somehow better,” De Goey says. “I'm not as willing to accept that at face value as other people are.”
