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Thursday, February 29, 2024

Size Matters When Seeding ETFs

Reported by Neil Anderson, Managing Editor

When it comes to launching ETFs, starting size matters, at least according to new data from the folks at a Boston-based research ally to the asset management industry.

Mario Favetta
Fuse Research Network
Relationship Manager
On Tuesday, the Fuse Research Network team revealed new data on the success of ETFs launched in 2020, 2021, and 2022. They further divided ETF launches between those seeded $5 million or less each on the one hand and those seeded with more than $5 million on the other hand.

Defining success as exceeding $50 million in AUM by the end of 2023, the Fuse found dramatically different success rates for ETFs with larger or smaller seed capital amounts. The success rate gap for 2020 launches was the largest at 31 percent: 59 percent of 2020 ETFs that were seeded with more than $5 million exceeded $50 million on December 31, 2023, while only 28 percent of those with smaller seed capital amounts reached the same level in time.

For ETFs launched in 2022, the success rate gap was 29 percent. 54 percent of ETFs seeded with more than $5 million and launched that year surpassed $50 million in AUM each at the end of 2023. Only 25 percent of the ETFs with smaller seed amounts got there, too.

The gap was the smallest for 2021 launches, at 13 percent, driven mainly by a lower success rate that year among ETFs seeded at a higher level. Only 40 percent of ETFs seeded with more than $5 million in 2021 were above the $50-million-AUM line on December 31, 2023. 27 percent of the ETFs below the $5-million-seed-capital line hit the same AUM milestone in time.

"Sponsors of new ETFs can dramatically increase the probability of attaining scale by starting with larger amounts of seed capital," writes Mario Favetta, relationship manager at Fuse. 

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