One of Europe's biggest names in exchange-traded funds is making its mark in America.
ETF Securities, the largest provider of exchange-traded commodity products in Europe, crossed over into the U.S. less than six months ago and is already gaining a following in an industry largely controlled by an elite group of veterans.
The firm's first product in the U.S. market, the ETFS Physical Silver Shares, launched in July, and was followed just two months later by the ETFS Physical Swiss Gold Shares. After seeing significant traction into the funds, the firm launched the ETFS Physical Platinum Shares and the ETFS Physical Palladium Shares.
Last week, the firm's four precious-metal funds hit $1 billion of assets under management, a milestone industry analysts consider extraordinary.
"It's remarkable considering their incumbents," said Bradley Kay, an associate director of European ETF research at Morningstar. "Considering the Spider Gold Shares is about a $40 billion fund, it's astonishing to be a competitor when you're against that kind of an incumbent. Their Physical Silver is their oldest fund [in the U.S.], and it's only half a year old — this is quite remarkable asset growth."
Ever since State Street Corp. launched the first ETF in 1993, this area of the fund universe has been dominated by a handful of companies, including Barclays, ProShares, Select Sector SPDRs and, of course, State Street. As ETFs gained in popularity over the past few years, these companies — along with Vanguard, Invesco PowerShares and a few others — have come to be seen as the unshakable kings of the ETF castle.
That's not to say competitors have not tried to tap into the space, though. In fact, this still-nascent area of the market sees its fair share of new entrants each year, with a bevy of new products flooding platforms.
Companies like Direxion and ProShares have even managed to make significant progress with leveraged and inverse funds during the recent market downturn. But few have managed to make as significant a dent as quickly as ETF Securities' four funds have in just under six months. Both Pacific Investment Management Co. LLC and Charles Schwab Corp. launched a group of ETFs last year, for instance, but at Jan. 31, Pimco had total assets under management of $558.9 million, while Schwab had $505.6 million, according to Morningstar.
"We wanted to look at physically backed precious metals [those backed by physical allocated metal] because that's where the investor appetite was, and it was something we could launch fairly easily," said Fred Jheon, head of product and business development at ETF Securities in San Francisco. The firm has offices in San Francisco and New York.
"We hit the sweet spot in the investor market. I knew that platinum and palladium would be successful, because they're first of their kind to the market in the U.S."
The platinum and palladium products alone have garnered $600 million of assets, as of Jan. 31.
So what's next? While Jheon admits that he plans to expand offerings in the U.S., the firm does not currently have any funds in registration.
"We're going to take a look at the commodity spectrum and see what makes sense for us and will likely move into other asset classes as well," he said.
"We're currently working on a few products, but we're always looking at new products."
One question analysts have is who ETF Securities will partner with, similar to how ProShares has teamed up with Deutsche Bank AG. "When you look at the previous commodity providers in the U.S., either they have a distinct partner or they have a backing bank themselves," Kay said.
"If they want to really move into this space in the U.S., they will need to find a dedicated partner to provide trading expertise and access to the market."