Michael Johnston at ETFdb has a clever thought experiment up wondering what an ETF of ETF providers would look like.  He notes the popularity of theme-driven ETFs and there are few hotter themes these days than ETFs.  He writes in his post:

So why not build an ETF that is built around an investment thesis of continued expansion in the ETF industry? Given the bright future for the exchange-traded fund space–and obviously intense interest in all things ETF–investors might jump at the chance to access a corner of the finance market that stands to benefit from growth in assets.

He goes on to note the many financial services companies involved in the ETF business including big names like Blackrock ($BLK), State Street ($STT), BNY Mellon ($BK) among others. Johnston also includes on the list the only pure play ETF provider WisdomTree Investments ($WETF).  That is the crux of the matter.

The ETF industry is by and large dominated by large banks and investment managers who have interests in any number of other lines of business that are not growing as rapidly as the ETF industry.  An ETF provider ETF would likely end up looking like any of the other large cap financial services ETFs.

One of the big issues with the way ETF providers put together thematic ETFs is that they are include large cap companies that are tangentially related with a theme to create portfolios that are liquid enough and diversified enough to trade.  The same issue would apply to an ETF ETF.

A recent McKinsey report projects only growth for the ETF industry.  Unfortunately for investors today there are few good ways to play the trend.

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