There’s now an ETF for anyone wanting to bet on the trade war, gamble on the cannabis craze, or go all-in on the death of the mall.
The financial industry has wowed investors in recent years with ever more specialized exchange-traded funds, but creating them isn’t necessarily simple or quick. Just because hand-wringing about guacamole prices was a fixture in market commentary during the last week doesn’t mean we’re likely to see an avocado ETF anytime soon.
Take TWAR, the fund that made a well-timed debut Wednesday to let investors bet on potential winners from an escalating trade war. While news tied to tariffs has been dominating headlines since President Trump escalated his spat with China last month, the firm behind the ETF has actually been working since November to get it to market.
One reason for the lag is that there’s a lot of work to set up a fund, including defining an investment strategy, hiring custodians and administrators, and figuring out which exchange will play host.
Asset managers must also seek approval from the U.S. Securities and Exchange Commission. A 75-day clock starts ticking as soon as the regulator receives a draft prospectus, allowing staff to ask questions that could require additional information.
“We have a 150-point checklist that we go through to make sure everything’s done,” said Mike Cronan, president of marketing services at Exchange-Traded Concepts, which helps independent companies start ETFs. “It’s not that easy to pull together.”
All told, it takes four to five months for an experienced issuer to bring a new fund to market, Cronan said. For newbies establishing connections with the various players in the ETF ecosystem, it can take upward of nine months, he estimated.
The process helps protect investors from anything too gimmicky or short-term. But it makes it really hard to stake out a position on avocados.