Invesco makes sense to me as they’ve already started down the path of acquisitions in the beta space with their purchase of PowerShares in 2006. One of the articles mentions that there’s some overlap between Rydex and PowerShares so this acquisition would be a bad move for Invesco. I don’t think so. Rydex focuses on levered and inverse exposures similar to ProShares, not PowerShares which is going after the niche sector ETF market as well as quasi-active strategy ETFs.
Rydex has yet to do what ProFunds has done by creating an ETF-centric organization (ProShares) to go along with its open-ended fund business. Why has Rydex been slow to follow? We know of filings with the SEC as I, and many others, have discussed the long list of ETFs that are in the pipeline from Rydex. PowerShares has had a fantastic track record of pushing products through the pipeline with very little friction. Maybe the people at Rydex will gain something on that end should this acquisition take place. Another good reason.
Furthermore, I wonder if scale will help both the PowerShares and Rydex families bring fees down. That could help in the Rydex battle against ProShares. PowerShares has multiple competitors in WisdomTree (for its fundamental weighted index ETFs), as well as Claymore and First Trust, who both also have interesting niche sector funds as well as quasi-active strategy ETFs. A future pricing war between these firms would signify to me an important evolution in the industry. Saturation would also become a concern in my opinion, but I have a feeling that we’re still pretty far away from that, believe it or not.
The tone of David’s last article seems to suggest that the purchase is basically a done deal. I don’t think it’s significant news in the bigger picture, but I wonder what the next steps are? Who’s looking to scoop up Claymore or First Trust or Van Eck? There aren’t that many of these lower tier firms to choose from. When I say lower, I mean by assets compared to BGI, SSGA and Vanguard. But there will likely soon be many more new entrants in the ETF provider space. These new entrants will surely bring new ideas to the ETF marketplace as most of the traditional space (broad asset classes, sector exposures, levered/inverse) has been covered. We’ll likely see more target date programs and other “funds of ETFs”. Also expect to see more in the alternative investment space, including more in private equity as well as hedge funds. With so much coverage of highs in the S&P 500 and other benchmarks, perhaps the timing of these alternative investments will be right.
Final thought: What if State Street Global Advisors got into the acquisition game? According to this story, also from InvestmentNews, SSGA has revised its compensation formula for wholesalers in an effort to focus more on ETF sales efforts instead of mutual funds and SMAs. I don’t think BGI’s shaking over this. There’s a comment in the story about recent strong numbers due to new offerings like their new international real estate ETF. I’m thinking that you put some interesting products in front of the wholesalers and they’ll be quicker in pushing them out the door. Until recently, SSGA wholesalers must have been feeling like domestic auto dealers. Dealer management can somehow try to pay a bit more to sell whatever is on the lot, but if they’re driving an import or have one on their screensaver, you know it’s a losing battle. Maybe SSGA will continue their recent roll of introducing interesting new products (and it’s been good) so it would be unnecessary to even considering purchases. But it makes much more sense than BGI or Vanguard, who I don’t see acquiring any of these smaller names at any point in the future.