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The Growing Exchange Traded Product Buffet

by Johanna

Advisors are excited about ETFs. In a recent survey of over 800 advisors conducted by State Street Global Advisors and The Wharton School of Business, 67% of polled advisors said that the ETF is the "most innovative investment product in the past two decades."

Product providers are equally excited, and recognize the opportunity exchange traded products offer, demonstrated by the 300-400 ETF products awaiting approval with the SEC, and the prediction that 560 ETFs are going to be launched in 2008. Twenty-three products were launched last month alone.

With the mad dash to get a piece of the exchange traded product market, providers are in danger of overdoing it. In the survey, 21% of advisors listed "overwhelming choices" as the greatest disadvantage of ETFs. What does this mean for product providers?

Educational Support

Firms must support the growing market with value added content around the advantages of products like ETFs and ETNs, but also around the underlying indices and the various ways these products fit into an investor's portfolio. Clearly the Web comes to mind as a key lynchpin to supporting advisors and helping them choose between the myriad products on the market today and those soon to come. For example, advanced product selection tools and educational tutorials around less understood products (such as ETNs) will be increasingly critical in the upcoming months.

Differentiate

Furthermore, few firms do a great job of differentiating their exchange traded product offerings. ETF providers have differing philosophies on how to structure their ETF offerings. For example, WisdomTree uses core earnings or cash dividends to choose and weight companies in their ETF products, and Vanguard's ETFs are an additional share class of its existing mutual funds. Do advisors understand what this means when it comes to choosing products? Firms that are able to educate advisors around product fundamentals, but then also differentiate in this rapidly expanding space, are more likely to come out on top.