Famed analysts and investors have been putting their names on ETFs. Here's what it takes for a fund to succeed.
A string of widely followed strategists, economists, and investors have launched exchange-traded funds in recent years.
There's famed NYU professor Nouriel Roubini — known colloquially as " Dr. Doom" — and his Atlas America Fund (USAF).
Then there's Dan Ives — the tech and AI permabull who can often be found on CNBC wearing fluorescent blazers — who has parlayed his bold analyst calls into the Wedbush AI Revolution ETF (IVES).
And let's not forget Fundstrat's Tom Lee — former chief equity strategist at JPMorgan — and his Granny Shots US Large Cap ETF (GRNY).
They've stepped into a crowded market with thousands of funds competing for investors' money. A record 723 ETFs came to market in 2024 alone. And they're using their own high-profile personal brands to stand out in a crowded marketplace.
But starting a fund is an entirely different beast than keeping one afloat for any sustained amount of time. Yes, strong performance is crucial. But running a fund is expensive, and it takes much more than good returns to ensure success.
To start, the cost to launch a fund is hefty. Firms are looking at a $50,000-to-$100,000 filing fee with the SEC, according to Zachary Evans, analyst for passive strategies at Morningstar. ETF.com puts that number between $100,000 and $500,000. Depending on the type of fund, there also may be an initial listing fee with NYSE or Nasdaq.
But the bills don't stop there. Listing fees with the exchange come due every year. With Nasdaq, for example, it's a $4,000 annual fee.
Then there's a long list of costs associated with running the fund itself, Evans said. Paying the staff who execute the trades. Paying compliance and a risk-management team. Paying sales and advertising teams to market the fund. Paying rent for your office space. And so on.
It all adds up, and it means funds need to amass significant assets under management. ETF providers make money through the annual fees, or expense ratios, they charge investors. So the more money they manage, the more money they're bringing in. Performance also plays a role here — if a fund's value rises by 20% in a year, the fees it extracts will be 20% higher.
"This can vary quite a bit, but a baseline number we've heard is that it should cost around $200,000 a year to run an ETF," Evans told BI. "More complicated strategies will cost more, simpler strategies will cost less, or if it's from a large firm that has economies of scale, it might cost less as well."
He added: "Say an ETF charges 50 basis points with annual expenses of $200,000 a year. You need $40 million AUM in order to break even on that product."
For some funds, there's also pressure associated with seed money. When an ETF launches, Evans said it might have some investors who promise to keep their capital locked up in the fund for a set period of time — say two or three years. Once that period ends, if the investors pull their money, it can be an existential threat to a fund if they haven't pulled in enough money from elsewhere.
"Once that seed money dries up, in order for them to endure, they need to make sure they have enough investor interest, enough assets to sustain them," Evans said.
Fund closures are increasingly common. Evans said a little more than 200 closed in 2023 — a record — and just under 200 closed in 2024.
"As more companies are launching their products, more companies are closing down their products — the vast majority of which have really failed to catch on with investors," Evans said. "They've failed to generate either the performance or, in effect, the asset level to support these products."
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