One of the biggest challenges facing modern issuers is getting their products to stand out. As investing has become more accessible to the average person, the number of products available has increased to meet demand. But as investing continues to innovate and evolve, the amount of products available to investors has grown. In turn, this has created intense competition and obstacles for new products.
As products evolve, so can problems
Understanding how we got to the current state of affairs is useful for unpacking how to solve the biggest challenges facing issuers.
Investing has come a long way from its early roots in trading commodities and debt. The creation of the precursor to the S&P 500 in 1923 marked a significant turning point. This index allowed investors to track broad market performance rather than individual stocks, fundamentally changing investment strategies.
Mutual funds emerged as another disruptive force. Starting in an early form in 1924, mutual funds combined risk mitigation through pooled resources with broad market tracking. Institutions and eventually retail investors gained access to diversified, liquid products.
The next big innovative jump came with Exchange-Traded Funds (ETFs). These transparent, flexible investment vehicles democratized the market further. If mutual funds were the Boston Tea Party, ETFs were the Battle of Saratoga. By 2020, over 3,000 ETFs were trading in the U.S. market, allowing investors to access previously inaccessible regions, sectors, and factors.
The crowded marketplace
While innovations widened market access, they also made it easier to create investment products. The SEC ETF Rule in 2019 streamlined the process, allowing more companies to launch ETFs. Over two decades ago, there were four issuers with 80 different ETF products. Today, there are over 200 issuers with more than 3,000 ETFs. Despite this proliferation, investors often stick to established names, with 75% of global AUM in mutual funds and ETFs being in products at least ten years old.
Standing out in a competitive landscape
With legacy products getting a huge part of the pie, issuers have resorted to lowering fees on newer products, which means that they need to cut costs in other areas. To thrive in the next decade, asset managers must rethink their innovation strategies, embracing new product categories and value-added services, all while competing with a host of existing and new products from other issuers. As daunting as this task can appear to be, there are ways to increase efficiency and grow AUM. Finding the right index can give a product a solid foundation.
VettaFi’s index services
VettaFi offers a suite of solutions designed to empower asset managers to stand out:
Bring your product ideas to life and minimize risk
Whether you are starting from scratch or optimizing an existing index, VettaFi can turn your new product ideas into reality. Issuers can create their own customized investment products by utilizing VettaFi’s Index Factory, which allows the use of client-proprietary data, as well as 3rd party data to build any desired index. Customization ensures that indexes align precisely with specific investment goals and market views, reducing risk.
Flexible services tailored to you
VettaFi’s services cover daily calculations, corporate action handling, implementation of weighting rules, and fully outsourced administration. Efficient and accurate index management allows asset managers to focus on core investment strategies, freeing up resources for other services.
Reduce costs and attract investors
Investors interested in a specific theme or a disruptive sliver of the market, such as A.I., renewable energy, weight-loss drugs, or robotics, can capitalize on those ideas’ high growth potential. By leveraging VettaFi’s index licensing services, asset managers can reduce operating costs by replicating index performance in their investment products. This cost-efficiency enables managers to offer more affordable products and attract a broader investor base.
The takeaway
Asset managers who create cost-effective or hyper-customized products will thrive as investment opportunities multiply. VettaFi’s index services equip managers to navigate this evolving landscape, stand out, and meet the diverse needs of modern investors.
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