New Exchange-Traded Product launches are off to a strong start in 2014. As the industry matures, it has become increasingly difficult to launch an ETP that can build assets quickly. Before launching a product, providers need to understand that the factors that drive short-term asset gathering success are not necessarily the same as those that drive long-term success.
Product innovation and market timing drive early ETP success. Product innovation or differentiation results from offering unique features that fill an unmet demand, such as exposure to an asset class or strategy previously not available through an ETP vehicle or a substantive improvement on an existing product. True product innovation is rare, but these products command premium pricing compared to the lowest cost ETPs. For instance, SPDR Gold Shares GLD gathered $3 billion in less than a year and fundamentally changed the way investors buy gold. It is still the most successful commodity ETP around and charges more than its closest peer, iShares Gold Trust IAU. Similarly, product innovation drove success for several ProShares products and the firm remains one of the largest providers of ETPs. PIMCO Total Return ETF BOND offered several innovations, such as access to a star portfolio manager in Bill Gross within an actively managed ETF, for a lower in price than retail mutual funds of essentially the same strategy.