“Throwing money” is difficult to exchange for high returns small and medium-sized fund companies “ETF fever” cooling

2022-06-05 0 By

Etfs, which have seen an explosion in new launches over the past year, are being abandoned by smaller fund houses.As newly entered ETF “players” in the past two years, many small and medium-sized fund companies said that they felt weak in the competition of manpower, material resources and resources. As the huge investment did not bring expected returns, some fund companies liquidated mini-ETF products and looked for new ways.The ETF market will see explosive growth in 2021.There were 256 equity ETFs launched in 2021, according to Wind, which is more than the total number of issuance from 2012 to 2019.However, behind the enthusiasm for new products, is the serious problem of homogenization.As of April 7, of the 547 Existing A-share ETFs, 201 had A size of less than 200 million yuan.Among them, 68 have less than 50 million yuan in size and are facing liquidation crisis.Since 2021, 19 equity ETFs have been liquidated.”Companies have always wanted etFs to be a feature of their development, but they found it hard to do in practice.””Exclaimed Li Ming (pseudonym), head of the index of a medium-sized fund company.Many fund companies into this no smoke of war, the ETF layout as the focus.Take a small and medium-sized fund company in Beijing as an example. The company once regarded the development of ETF as a strategic task and took the first step in 2021 to set up the first industry-themed ETF.At the same time, fund companies that have not entered the market are also eager to try to achieve differentiated competition through ETF products.However, this path is not easy, Li Told China Securities Journal: “The company’s ETF has been prepared for liquidation, because it is really difficult to do.We are not competitive with other companies, and we cannot find growth points.”He said frankly that it is difficult to expand the scale of ETFs because of the huge input resources and the scale of output. We have missed the development cycle and do not have advantages in resources.A mid-sized fund company announced the introduction of AN ETF trading system and said it would strengthen the development of instrument-based products through large investment.Two years on, the two existing ETFs have been reduced to micro funds.In order to maintain the operation of ETF products, fund companies need to invest a lot of manpower and material resources. No matter system construction, investment in publicity, or later liquidity maintenance, they must rely on the company’s strategic support, especially system construction is very important.Redemption lists (PCFS), for example, are one of the most troublesome places to manage an ETF.Unlike other index funds, ETFs are redeemed in kind, and ETF managers are required to publish a redemption list document before the market opens each day, listing the basket of stocks that should be delivered on that day.And PCF subtle errors will appear arbitrage space, so that fund holders, fund companies bear huge losses.”Although the ETF of our company is not large, in order to do PCF, the staff work overtime until 10 o ‘clock every night, and the risk control and IT departments have to devote staff.And you have to buy a very expensive system, and it needs to change as the rules change.”Li Ming says.The head of another index fund also said etFs are largely a “throw money” product.He said: “Take the industry theme ETF as an example, the same track can accommodate not many products, except for the head products, the rest of the products are easy to become accompany, but still have to spend a lot of resources in product publicity, market makers, many fund companies are losing money.”In the eyes of industry insiders, THE ETF market has shifted from “blue ocean” to “red sea”.Fund companies that want to deploy index products, but fear being caught up in homogenised competition, need to find a new outlet instead.Fund companies said, will force LOF index fund this niche product.Li Ming introduced that in the future the company’s index products will focus on LOF index funds or general open index funds.Specifically, will send force has a distinct theme or industry attributes of the theme index fund and industry index fund.The “small idea” behind this is eyeing the customer groups of the Internet sales platform.”The majority of LOF index funds and general open-end index funds are held by over-the-counter investors.With the continuous development of Internet financial platforms, more and more young people join in fund investment, and many post-90s and post-00s investors will take the initiative to follow the market, have allocation needs, and tend to use index fund investment.The Internet platform focused on over-the-counter investors provides a good opportunity for fund companies to shift to LOF index funds and general open-end index funds.”Li Ming says.