This week marks the first anniversary of Scottrade’s FocusShares, the online brokerage family’s 15 exchange-traded funds that track Morningstar indices.
At the time of launch, Focus Morningstar ETFs were the cheapest in their respective categories, undercutting industry veterans like Vanguard and iShares. The U.S. Market Index [FMU] and the Large-Cap ETF [FLG] are the fund family’s cheapest ETFs; each has an expense ratio of 5 basis points.
But the low-fee strategy alone is not doing the trick. The 15 Focus Morningstar exchange-traded funds attracted approximately $92 million in total assets during its first year, significantly less than industry competitors.
So, after 12 months on the market, FocusShares is ramping up its efforts, looking to boost market share by highlighting other features of the young family’s funds.
The 15 Focus Morningstar ETFs track Morningstar’s U.S. Market, Large-Cap, Mid-Cap, Small-Cap and 11 sector indices, a unique characteristic that separates the fund family from its competitors.
“It’s the troika affect,” said FocusShares President and CEO. Erik Liik. “Low cost, low tracking error and Morningstar indices.”
Throughout its first year, FocusShares relied heavily on the brokerage and custody network of Scottrade, but with one year under its belt, FocusShares is looking to expand and build a base outside of its parent company.
“Our long-term view is constantly evolving,” said Liik. “[FocusShares] is always evaluating opportunities moving forward. Our book is not complete. We want to take FocusShares beyond Scottrade and focus on third-party channels.”
The heavy inflow of money and growing popularity of the ETF market provides opportunity for young fund families like FocusShares. According to the ETF Industry Association, total assets in ETFs and exchange traded notes increased by $13.9 billion last month, boosting the industry’s total to more than $1.2 trillion, approximately 14% higher compared to one year ago.
And Liik is no stranger to the ETF market; the ETF veteran founded FocusShares in 2007, and played a role in launching the very first exchange-traded funds.
With more and more money pouring into exchange-traded funds, what’s the next step for the industry?
“There’s opportunity within the 401k market,” said Liik. “The holy grail is the 401k marketplace. It’s kept the mutual fund industry ticking over the past several years.”
Some 401k plans already include ETFs, but the massive money inflow and growing popularity in the industry will likely boost long-term demand. The appeal is simple; low fees, strong track record and transparent portfolios.
“Transparency combined with portability is a big advantage,” said Liik. “It’s important to the issuers as well as the investor.”