ETF startup IndexIQ, Inc. is the latest advisor in the exchange-traded fund game to lock up a star from academia. The Wall Street Journal's Fund Track column reports that IndexIQ lassoed Yale professor Frank J. Fabozzi as a senior advisor. The signing takes a page from the playbook of rivals, including WisdomTree which signed Jeremy Siegel, a professor at U. Penn's Wharton School.

Last week Barclays Global Investors also brought Princeton Prof Burton Malkiel to a media conference where he endorsed ETFs before touting the merits of investing in China (ironically, the bulk of the Fund Track reports on closed end funds investing in China and the liklihood that the Chinese stock market is overvalued).

Malkiel, a longtime Vanguard board member and an early proponent of indexing, also engaged in some good-humored joshing of Vanguard founder during the press briefing during which he acknowledge the rift between the two father of indexing that has arisen over the role of ETFs versus mutual funds. Noting that he had reviewed Bogle's last book for the New York Times, Malkiel doubted that Bogle would review his when it comes out. Malkiel is working on a book covering investing in China, called "From Wall Street to the Great Wall."

At IndexIQ, Fabozzi is expected to help the firm develop a series of if fixed-income products. The Yalie is well-known as an expert in bond investing and risk management. He is the editor of the Journal of Portfolio Management. He has also lent his name to asset management conferences aimed at institutional investors.

Firms in the increasingly crowded ETF market are turning to academics in a bid to differentiate what are widely viewed as commodity products sold on price. Top academics carry a special weight with investors who are the primary users of these products. More than half of ETF trading is done by institutional investors and hedge funds. Much of the retail volume comes from financial advisors who rely on indexing for their clients while they provided other services, such as asset allocation and financial planning.

Few new products are able to grab significant market share in a space that is no dominated by two players: Barclays; iShares and State Street Global Investors.

ETF Market Share Leaders Issuer No. ETFs ETF AUM $Bil Share % Barclays 136 $291.9 59.0% State Street 59 103.3 20.9 Vanguard 32 34.7 7.0 PowerShares# 75 28.1 5.7 World Gold Trust Services 1 9.9 2.0 BoNY/Merrill (HOLDRs) 17 7.2 1.5 Rydex 25 6.0 1.2 ProShares 52 5.0 1.0 Wisdom Tree 36 3.9 0.8 DB Commodity Svs 11 1.8 0.4 Victoria Bay 2 0.9 0.2 Van Eck 5 0.8 0.2 Claymore 21 0.6 0.1 First Trust 31 0.4 0.1 Fidelity 1 0.1 0.0 XShares Advisors 17 0.1 0.0 Ziegler Capital 1 NM 0.0 # Owned by Invesco Source: Bloomberg, Morgan Stanley Research

 

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