5 ETFs With Distinct First Mover Advantages (ECON, HYD, MOO)
One noteworthy trend that has been easily spotted during the evolution of the exchange-traded products business has been the proliferation of copycat or "me too" ETFs. Simply put, one ETF issuer comes to market with a fund focusing on a particular country, sector on niche and a rival issuer later follows suit with a fund that has a different, but one that essentially does the same thing as the original.
Vanguard, the third-largest U.S. ETF sponsor with almost $208 billion in ETF assets under management at the end of April, has introduced plenty of funds that aren't much different than comparable, older iShares and SPDRs products. iShares, the world's largest ETF firm, also has a long list of first-to-market funds, but the firm has also encroached on territory previously occupied by its rivals.
This isn't a bad thing, at least not for investors, because the proliferation of me too ETFs has been known to spark some fee reductions from the issuer of the first-to-market fund that is facing new competition.
In one recent example Van Eck's Market Vectors unit pared costs on its Market Vectors Indoneis ETF (NYSE: IDX) for the second time since January 2011. The firm didn't say it, but it's not unreasonable to assume the lower expenses are at least partially attributable to existence of the iShares MSCI Indonesia Investable Market Index Fund (NYSE: EIDO).
Again, competition is a good thing, but even though rival ETFs keep popping up, some funds have first mover advantages that have proven to be too much to overcome or that will prove to be hard to fight in the future. Here are some noteworthy examples.
Market Vectors Agribusiness ETF (NYSE: MOO) In the world of agribusiness ETFs, maybe there can be only one. At least only one that focuses on the sub-sector's large-caps and that one is the Market Vectors Agribusiness ETF. Nearly five years old, MOO has seen competitors come and go while maintaining its status as the largest, most liquid agribusiness ETF.
The iShares MSCI Global Agriculture Producers Fund (NYSE: VEGI) came to market in late January and is 14 basis points cheaper than MOO, but has gained little traction against its more established rival, attracting just $4.6 million in AUM. To this point, only the IndexIQ Global Agribusiness Small Cap ETF (NYSE: CROP), more a complement to than a rival of MOO, has proven to be a worthy option beyond MOO among agribusiness funds.
iShares MSCI Philippines Investable Market Index Fund (NYSE: EPHE) This isn't a commentary on the validity of the Philippines investment thesis or EPHE itself, though we'll admit our bullish view of the ETF has taken a hit recently, but EPHE appears to have found support at $27.
Disclaimers aside, in 18 months of trading as the only Philippines-specifc ETF on the market, EPHE has amassed almost $136 million in AUM. More importantly, it is now known as the go-to Philippines ETF. Perhaps the only way a rival can hope to compete is to significantly undercut EPHE's 0.59% expense ratio.
Global X Social Media Index ETF (Nasdaq: SOCL) Surprisingly glum action on Facebook's (Nasdaq: FB) first day of trading notwithstanding, SOCL's status as the first, and to this point only, social media ETF should prove durable. Being the first ETF that Facebook will call home won't hurt SOCL's status as the preeminent social media ETF, either.
Despite the popularity of social media and all the attention given to the Facebook IPO, ETF sponsors have shown no plans that indicate they're willing to challenge SOCL.
Market Vectors High-Yield Muni ETF (NYSE: HYD) The Market Vectors High-Yield Muni ETF does have a rival in the form of the SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSE: HYMB), which debuted in April 2011. HYMB now has almost $84 million in AUM, not bad, but well short of the $605.4 million HYD has. Not to mention, HYD's 30-day SEC yield is nearly 30 basis points and its expense ratio is 10 basis points lower than the SPDR fund.
EGShares Emerging Markets Consumer ETF (NYSE: ECON) There were ETFs that offered exposure to the emerging markets consumer before the EGShares Emerging Markets Consumer ETF popped up in late 2010, but ECON was really the first fund to be an overt pure-play on emerging markets shoppers. As we previously noted, a rival to ECON has appeared, but ECON has outperformed that fund. ECON also has over $400 million in AUM, a figure that could easily prove to be too much to overcome in this narrowly-focused corner of the exchange-traded marketplace.
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