Looking At The ETF For The ETF Industry

The exchange-traded funds industry keeps breaking its own assets under management records. For example, the global ETF industry had more than $3.9 trillion in combined assets under management at the end of the first quarter, up from the prior record of over $3.8 trillion set at the end of February.

2 ETF-Industry ETFs

In what may be a case of “finally,” an ETF dedicated to the ETF business came to market last week. The ETF Industry Exposure & Financial Services ETF TETF brings the ETF industry into one easily accessible wrapper for investors that want to profit from the industry's stellar growth without having to stock pick.

Of course, the ETF Industry Exposure & Financial Services ETF holds shares of big-name issuers such as BlackRock, Inc. BLK, parent company of iShares; and WisdomTree Investments Inc. WETF, the only publicly traded pure play ETF provider. However, there is much more to TETF's lineup than just ETF sponsors.

Taking On TETF

TETF “has 37 constituents weighted on a tiered system tied the significance of ETFs in relation to each firm’s overall business. All of the current constituents are U.S. companies, but that may not always be the case,” said AltaVista Research in a note out Thursday. “Large-caps (>$10 billion) dominate at about 60 percent of the fund, but that still allows appreciable exposure to Mid-caps ($2-10 billion) of 28 percent and Small-caps (<$2 billion) at 12 percent. Not surprisingly Financials account for about 90 percent of the portfolio while Tech accounts for most of the rest.”

About three-quarter of TETF's underlying index is devoted to companies that seen as “significant” ETF industry participants while the remaining 25 percent is allocated to companies with moderate to small ETF industry exposure. In addition to issuers, TETF holds shares of index providers, exchange operators and publicly traded liquidity providers.

“What really stands out about companies in the fund is the rapid growth in revenue in recent years. In a sluggish economy with low nominal GDP growth, revenue for firms in the S&P 500 grew at only a 2.1 percent annual rate between 2012-17E, while firms in the Financial Sector SPDR XLF saw only 1.0 percent annual top-line growth. But firms in the ETF Industry fund grew sales an amazing 8.5 percent per annum, beating even the vaunted companies in the Technology Sector SPDR XLK,” said AltaVista.

TETF is more richly valued than XLF, XLK or the S&P 500, but that is because analysts are expecting superior earnings growth from TETF member firms, noted AltaVista.

Disclosure: Todd Shriber owns shares of XLF.