WETF is the only listed pure play ETF manager it's a scarce asset with a superior business model to traditional managers. There is no key person risk and because they construct the indexes have little chance of sustained under performance. ETF's also benefit from first mover advantage once an ETF gains mindshare for their ticker the volume and liquidity this generates makes it very difficult for new indexes to gain traction. Also unlike other fund managers there are little concerns over capacity an index is much more scaleable than other investment strategies.
No key person risk
WETF have only 124 employees there are no expensive fund managers and analysts to pay bonuses out to. The employees they do have are exceptional. The chairman and largest shareholder is Michael Steinhardt a legend in the hedge fund world who returned 24% per annum over a 28 year period. Jeremy Siegel the Wharton professor and author of stocks for the long run is their investment strategy advisor.
ETF's are the new mutual funds
There are $2.1 trillion in ETFs in the US with $1.4 trillion in inflows since 2007 (see below.) WETF has taken 4% of those inflows. This ETF trend is likely to continue with advisor moves to fee for service. The US ETF market grew at 18% last year. If market share continues to grow (only 13% see below) assuming that ETF inflows total $3 trillion over the next 10 years and WETF continues to take 4% of these inflows. WETF will eventually have hundreds of billions of funds under management. As funds under management triple the stock should follow. Note these assumptions do not include the growth opportunities in Europe and the rest of the world who prefer the liquidity of ETFs based in the US. Their margins should also expand rapidly with this growth. It's interesting to see that WETF is not only one of the fastest growing fund managers but also already one of the most profitable.
Outperforming with a passive investment
WETF is the only listed pureplay ETF provider. Traditional funds management businesses are good businesses as they scale easily with very little people required. ETF providers have a even better business model. There is no key fund manager risk, it's hard to underperform when you create your own benchmark and indexes have few capacity constraints in how much capital they can manage. As advisers move to fee for service the move to passive ETF's is a trend that will likely continue. WETF now has scale but it's also small enough to keep growing. As an active manager it's a little ironic buying an ETF provider but their superior business model should help it to outperform the market.