(Bloomberg) — Sofia Massie left her job at Jane Street in January with one thing: an idea for an ETF that would mirror the US stock market but quietly hold onto dividends, wringing out a tax advantage many investors never see.

She didn’t have a team. Or a brand. Or the institutional heft that usually comes with a Wall Street-backed launch. What she did have was about $300,000 — and a white-label firm to handle the mechanics. Eight months later, the LionShares US Equity Total Return ETF (TOT) went live.

Massie’s fund is one of dozens now reshaping the $13 trillion ETF industry. As launch costs plummet, a record wave of issuers — independent traders, hedge-fund holdouts, mutual-fund refugees — is testing whether conviction and capital are enough. The dominance of the industry’s big three players is starting to crack: BlackRock Inc., Vanguard Group and State Street Investment Management drew just 57% of investor flows this year, their lowest share on record. 

But as the flood of new funds accelerates, so does the race for shelf space, relevance — and survival.

“Launching an ETF is very easy for anyone who has the money to do it,” Massie, 25, said. “The main challenge I had was keeping the cost low and starting the fund as a one-woman team.”

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The past two years — during which ETFs attracted more than $2 trillion in investor cash — have seen 60 new issuers enter the ETF market, the most on record, according to data compiled by Bloomberg Intelligence. More firms have launched ETFs since 2020 than in the entire period dating back to the debut of the first exchange-traded fund in 1993.

And it’s not just emerging players that are being drawn to the field. Big-name hedge funds like Man Group Plc, storied European asset managers like Pictet Group and old-school mutual fund managers like Baron Capital are diving in. 

All are racing to capture a share of the trillions of dollars that have poured into the market in recent years. Industry watchers say the list of firms yet to jump in is set to grow thanks to fresh regulatory breakthroughs, including the potential approval of ETFs as share classes of mutual funds, and expedited listings for commodity-based products, including crypto-linked ETFs.

“The ETF footprint is only set to keep expanding,” said Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence. “It’s increasingly self-evident that the ETF is a better wrapper. Asset managers that fail to embrace it risk being left behind as the industry evolves.”

Demand for easy-to-trade vehicles keeps climbing. ETFs now make up 36% of all US fund assets, double their share from a decade ago, BI data show. Still, just one in three of the more than 600 US asset managers BI tracks offer them, meaning that plenty could still enter the arena.

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Lowered Barriers

For many, working with a white-label issuer streamlines the process. The firms can take care of various back-end work, including filing for funds and working out sales and distribution plans. 

“The barriers to entry in the ETF space have come down dramatically — what used to take years and millions of dollars can now be done in months for a fraction of that cost,” Gavin Filmore, chief revenue officer at Tidal Financial Group, said. “The real challenge today is differentiation and distribution.”

Tidal, a full-stack white-label ETF platform, now oversees more than $50 billion in assets, having rolled out some 138 funds this year — a 52% jump from 2024 and more than twice as many as two years ago. ETF launch costs vary by complexity, strategy and structure, but Filmore estimates around $65,000 is needed to set up a fund and about $225,000 in annual operating expenses. That’s down approximately 20% from a decade ago. 

As competition has heated up — ETF launches have tripled since 2021 — closures have also surged. This year, roughly one ETF has shut down for every five that have debuted, data compiled by Bloomberg show. With more than 4,500 funds now in existence, keeping an ETF alive has become tougher, as oversaturation makes it harder to attract and retain enough assets to remain cost-efficient and liquid.Two months after launch, Massie’s handed off the day-to-day mechanics — fund accounting and custody — to a network of specialist service providers. Her fund has $6.5 million in assets. 

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“In a world where the actual logistical process of launching an ETF has become easier, now the real challenge is making the product more commercially viable,” she said. “The real work is ahead of me.”