Will the Shake-Up At XShares Lead To a Strategy Shift?

In the first major shake-up among the new generation of exchange-traded fund [ETF] companies, William P. Henson has taken the reins as CEO of XShares Group LLC. The role was formerly held by Jeffrey Feldman, co-founder of the company, who will retain his position as Chairman of the group.

Henson is a partner at Grail Partners, an advisory merchant bank that is a lead investor in XShares. His assumption of the CEO spot suggests that Grail Partners wanted a more direct role in shepherding the growth at XShares, and may suggest something about the company's strategy going forward.

In the classic VC role, Henson will continue to hold his position with Grail Partners while serving as CEO of XShares.

"Bill has a profound knowledge of the ETF industry, and his vision of its future will be essential to the ongoing growth of XShares, especially as we continue to introduce new and innovative products to the marketplace," said Jeffrey Feldman, founder and chairman of XShares.

XShares currently has one family of ETFs on the market, called HealthShares, which focus on various subsets of the health care sector, such as infectious disease, neuroscience, cardiology, and patient care services. Although the products are unique, they have failed to take off. There are 19 HealthShares ETFs on the market today, but their combined assets total less than $100 million. The largest fund by far is the HealthShares Diagnostics ETF (HHD) with $31.5 million in assets, and the next largest is the HealthShares Patient Care Services (HHB) with just $7.7 million. The vast majority of the funds have less than $3 million in assets.

The company also has additional ETFs in registration, including a family of StateShares ETFs (which will hold companies located in a single state) and an AirShares ETF (which will invest in futures contracts on carbon emissions allowances in the European Union).

Managing its own ETFs, however, is not XShares' only business line. The company is also working as a listing and sales partner for other companies looking to enter the ETF space; originally, the "X" in "XShares" was meant to be a placeholder ... suggesting an empty branding space that other companies can fill. Toward this end, it is working with Realty Funds to launch the Adelante family of REIT ETFs, and has teamed up with IndexIQ for a family of "Intangibles" ETFs. It is also involved in the TDAX Independence Target Date Shares, which will track five target date indexes developed by Zacks Investment Research.

The CEO switch may suggest that XShares will emphasize this partnering side of the business over its HealthShares and internally created ETF lineup, although it continues to pursue both paths.

In related news, XShares recently received a $10 million investment from a group of European institutional investors, which it will use for sales, marketing and product development.