The growth in products and assets has been self-perpetuating to a degree. Fledgling providers and financiers read the headlines trumpeting industry asset growth, see dollar signs, and register their own line of products in order to get a piece of the action. Hence the 300 or so ETF launches that have taken place in the last 15 months alone, many from upstart providers.

But how well is the market digesting these new ETFs, and how much have they contributed to the industry's asset growth? Based on some cursory research, the answers are-‘not well' and ‘little', respectively.

Let's start with some big picture stats:

• Industry assets under management grew from $110.5 billion in April 2003 to $587.8 billion in March 2008, which equates to a roughly 40% compound annual growth rate.
• Ten ETFs accounted for almost 40% of the growth in assets under management, twenty for 51%, and fifty for nearly 70%.
• Of these fifty ETFs, thirty four existed in April 2003; stated differently, fewer than one in three incepted in the last five years (eight launched in the latter part of 2003 or 2004).

While that's to be expected to a certain degree--the funds that account for the bulk of the industry's growth are core offerings that are growing off a large base--what's striking is the degree to which ETF assets remain concentrated among a handful of offerings. For instance, if we divvy up the ETF industry into deciles by assets under management, we find that assets have become more concentrated among the largest ETFs. Consider - as of December 2003, the top decile--consisting of 10 or so ETFs--accounted for 74% of industry-wide assets (the top two deciles soaked up 85% of assets). By December 2007, that number had risen to 79% of assets (91% for the top two deciles, spanning roughly 140 ETFs). In case you were wondering, that trend holds across every single decile.

That's precisely the opposite result one would expect from an industry whose growth is being driven primarily by a profusion of new offerings. In fact, the roughly 440 ETFs that launched in 2006 and 2007-tripling the number of funds in the process-accounted for just 15% of the industry's growth from April 2003 to March 2008. What's interesting is that assets were getting more widely diffused across the industry from 2003 to 2005, suggesting that newer funds were capturing market share. But that trend reversed in 2006, a year that saw numerous niche ETFs launch.

Do things change markedly when we focus on the 2006 and 2007 periods? After all, funds that incepted in those years by definition could not have driven growth in 2003, 2004, and 2005. From Dec. 2005 to Dec. 2007, ETF industry assets increased $321.8 billion. Of that growth, $52.4 billion, or 16%, was attributable to funds that launched in 2006 or 2007 ($32 million from 2006 vintage ETFs, $20 million from 2007 incepts).  

Which of the new products have gained traction? Generally speaking, first-mover commodities, foreign, and leveraged/short ETFs. Here are the top-ten 2005/2006 vintage ETFs by asset growth:  

How does the rest of the universe shake out? Here's a cross-section of asset growth (12/05 - 12/07) for all ETFs that launched in 2006 and 2007.

What are the takeaways? We've seen relatively few 'graduates' from the classes of 2006 or 2007--less than 10% of these new funds have gathered more than $400 million in assets thus far. Also, more than one in four funds is sitting on less than $10 million in assets, though the bulk of those are 2007 incepts. (It's worth noting, though, that more than half of these launched in last year's first half...meaning that it's not purely a function of how much time has elapsed).

It hasn't been all bad news for the upstart providers. For instance, ProShares has gotten off to a very impressive start, as that firm gathered $9.7 billion in assets from Dec. 2005 to Dec. 2007, a haul that topped all other firms, incumbents included. WisdomTree ($4.6 billion) and Market Vectors (i.e., Van Eck, $3.6 billion) also made strong showings.

All the same, it's not as if the big Berthas of the industry sat idly by. iShares, SPDRs, Vanguard and PowerShares launched 179 ETFs in 2006 and 2007, with those names accounting for roughly half of all assets gathered by funds that incepted in those years. But other firms--like First Trust, Rydex (excluding its CurrencyShares line), and xShares--struggled to attract assets, as evidenced by those firms' paltry assets per fund launch.

Here's a more complete tally of asset growth by ETF family...

I'll probably dig further into industry dynamics--such as whether first-mover advantage is a real phenomenon, etc--in future postings. But thought that this was interesting fodder for the time being.