RT Journal Article SR Electronic T1 Institutional Interest in Core and Niche ETFs JF ETFs and Indexing FD Institutional Investor Journals SP 158 OP 181 VO 2009 IS 1 A1 Richard C Kang YR 2009 UL http://guides.pm-research.com/content/2009/1/158.abstract AB As with the major market downturn in the earlier part of this decade, the recent bear market has resulted in impressive asset flow to exchange-traded funds as investors again realize the benefits important to them, whether they be cost, liquidity, transparency, or tax advantages, among others. However, since the beginning of 2008 the author also has found evidence that the ETF industry has matured to the point where consolidation and fund closures have been required. This is especially true in the U.S. market, where roughly 60 ETFs were closed down in 2008. There have been roughly 50 ETF launches and 50 ETF closures in the first half of 2009, so it seems likely that the number of closures in 2009 will surpass last year’s total. This article attempts to create an understanding of where the ETF industry is directed and what now determines success. With regard to future product development, is there a limitation on “pure indexing” traditional exposures? This would comprise mainly funds with underlying equity indices applying a classic market-cap-weighted methodology. It would seem that there is little left in this land grab. If so, is the future focused more on niche offerings or on non-market-cap-weighted indexing methodologies, methodologies, or a combination of the two that seem to be most popular in recent years in terms of fund launches but not necessarily in terms of asset size? Beyond this are the levered/ inverse ETFs and pure actively managed ETFs, both of which currently have their own set of difficulties. From 13-F filings, among other resources, we know what large institutions hold in various ETFs, both what would be considered core (S&P 500, MSCI EAFE) and niche positions. The evidence would suggest that ETF holding periods are short and that many investors are thus applying tactical strategies. It would seem plausible that many niche offerings may not be considered long-term holdings, and thus the attributes of ETFs are favored even more. For the more exotic exposures, the ETF industry is still young. The question is whether the survivability of smaller sponsoring firms in this tough environment is enough to sustain worthy products. Or will the ETF industry evolve to one with a small number of giant providers? As usual, the market shall decide.