“They [Invesco PowerShares] will be in better shape when this deal closes, but will still face challenges to grow,” Rosenbluth says. “It’s becoming increasingly important for ETF providers to bring costs down and get the benefits of scale, especially when they’re competing against deep-pocketed asset managers whether it’s incumbents like iShares or new entrants like Goldman Sachs or JP Morgan. PowerShares has been bringing lower-cost products to market, and we think having more scale will help them.”
Rosenbluth says he doesn’t expect the Invesco-Guggenheim union to open the floodgates for similar type mergers in the ETF space. He noted that the past few years have seen active managers who don’t have an ETF presence buying existing ETF providers to jumpstart their opportunity in the ETF world. Examples include New York Life’s purchase of IndexIQ; Janus buying Velocity Shares and Hartford’s acquisition of Lattice.
“I would think future deals would be like those types of transactions,” he says. “I think the pie is growing enough to where ETF providers will try to grow their business organically, while non-ETF providers will go the acquisition route.”