RIAs who think they have a whiz bang investment strategy that might translate into a successful exchange-traded fund now have another avenue to make it happen.

Gemini Fund Services LLC and Arrow Investment Advisors LLC have joined forces to create the Northern Lights ETF Trust (NLET), a shared fund trust designed to bring new ETF ideas to market.

“We want to lower the barriers of entry to create ETFs,” says Andrew Rogers, president of Hauppauge, N.Y.-based Gemini, a turnkey company that helps advisors and others create mutual funds, variable annuity funds and hedge funds.

To date, Gemini has launched three shared mutual fund trusts under its Northern Lights Fund Trust umbrella. These pooled trusts are comprised of independent funds that are managed by separate investment advisors, and are designed to create operational efficiencies and streamlined regulatory compliance to make it more cost-effective to create and maintain funds than on a standalone basis. The funds in the trust are sold mainly through third-party intermediaries such a broker-dealers, wirehouses, and custodial platforms.

Gemini also has its Northern Lights Variable Trust to service variable insurance trust funds that are offered through insurance company platforms, as well as services to help investment advisors launch hedge funds and other alternative investments such as collective investment trusts.

NLET is designed to be stocked with independent ETFs managed by separate investment advisors. Like with the mutual fund trusts, it will be sold mainly on third-party platforms.

To date, the first and only fund in the trust is the Arrow Dow Jones Global Yield ETF (GYLD), which is a multi-asset income ETF tracking the Dow Jones Global Composite Yield Index that’s comprised of five equal-weighted yield categories––alternatives, corporate debt, equity, real estate and sovereign debt––for a total of 150 high-yielding securities.

GYLD’s launch last May was the formal beginning of NLET, but Rogers says he held off marketing the ETF trust until GYLD had a chance to prove itself in the market. “We first wanted to make sure it was going to be successful,” he says. “Now we’re comfortable it’ll be a success.”

As of Friday, GYLD has gained nearly 12% since inception and sports a market cap of $32 million with an expense ratio of 75 basis points. Gemini started marketing NLET late last year.

Gemini has a longstanding relationship with Arrow Investment Advisors, an Olney, Md.-based asset management firm that specializes in tactical and alternative investments and is the advisor to Arrow Funds (mutual funds) and ArrowShares (ETFs). Arrow was one of the first clients in the Northern Lights Fund Trust and was instrumental in the success of the trust, Rogers says. The Arrow Funds eventually left the trust, but still utilizes Gemini for administration, transfer agency and accounting services. Arrow and Gemini teamed up again to launch the first ETF in the NLET, and Arrow will play an active role in bringing additional ETFs to the fold.

Arrow brings a couple of key attributes to NLET: product development skills and exemptive relief.

Regarding the former, Arrow subadvised the launch and management of four Thomson Reuters/Jefferies ETFs and the Alerian MLP ETF (ALPS was the advisor to all five funds). And in another life, says Arrow CEO Joseph Barrato, several current Arrow executives helped Rydex build its ETF business.

As for the latter, ETFs need exemptive relief from the Securities and Exchange Commission from certain provisions of the Investment Company Act of 1940 that don’t allow the ETF structure. Barrato says Arrow obtained exemptive relief six years ago, but it took its time in rolling out a product until last year’s launch of GYLD. “We have good [exemptive] relief that let’s us go passive or active or to use derivatives,” he says.

Advisors and others who create funds through NLET have the option to use Arrow’s previously–obtained exemptive order rather than obtaining their own exemptive order, which is a time consuming and costly process.

Arrow must serve as the advisor to any ETF on NLET that employs Arrow’s exemptive relief. “We have to make sure they’re abiding by the exemptive rules from the SEC,” Barrato says. “I’ll be holding their hands through the process, and they’ll get expertise from our product development and portfolio team.”

Expanding The Game
The ETF market is booming, and it’s not just the big boys who are bringing products to market. Exchange Traded Concepts, ALPS and AdvisorShares are already out there enabling advisors and others to turn their investment strategies into ETFs.

Barrato and Rogers say they will be selective about who they'll work with. They hope to have about five ETFs on the trust by year-end 2013. “We’re not looking to do every Tom, Dick and Harry product,” Barrato says. “We’ve seen a lot of products get launched that nowhere because the markets didn’t support them.”

Barrato says NLET has been approached with a handful of ideas ranging from an index provider with no assets under management to a large outfit managing billions of dollars.

Finding winning ideas isn’t always easy, as Rogers noted in a prior article about advisors who turn their investment strategies into fund products. With NLET, he says he wants products with a distinctive investment point of view that can attract assets and trade with significant volume.

Advisors and firms who launch investment products through a trust hope to achieve efficiencies that keep their costs down. Rogers estimates it costs $250,000 and up to create an ETF on one's own versus $50,000 to $75,000 via NLET. The benefit of a fund trust for investors, Rogers says, is that trusts can achieve a size and scale that, in theory, can produce lower expense ratios.

“Once you get the efficiency of more assets, expense ratios will decline,” he says.