With the flick of his wrist, Richard Michaud flashes his Apple Watch and presses on its sleek black screen. In a few taps, green and red squiggles appear, revealing how the market performed that day. But this isn’t a benchmark like the S&P 500 or the Russell 2000. Instead, Michaud’s screen reflects the trajectory of his firm’s own strategies, using an index he started earlier this year.

“You can check it on your phone in real time,” says Michaud in an interview. “There’s no index like this in the world. These are all totally new.”

The proprietary gauge is one of several that Michaud, who runs Boston-based New Frontier Advisors with his son, Robert, created to stand out from the crowd. His peers are starting podcasts, ramping up their social-media footprint, and even creating video content. But all this creativity is aimed at fending off an existential threat.

These companies are holdouts in a previously vigorous slice of the exchange-traded fund industry: Independent advisers that craft investment strategies almost exclusively with ETFs. Once the dominant game in town, smaller players are devising new ways to stay competitive as multi-trillion-dollar companies like BlackRock Inc., Vanguard Group and State Street Corp. muscle in on their turf.

“It’s becoming such a competitive field that the term ‘ETF strategist’ will fall away,” says Scott Smith, a director at Cerulli Associates. “There was no barrier to entry before, but now you’re coming up against every asset manager in the world who wants to do this,” he says, adding, “I don’t know how many can survive.”

Close to 80% of strategists cited competition from the mega-managers as their most significant challenge last year, up from about 30% in 2016, according to research from Cerulli Associates.

ETF strategists -- including BlackRock, Vanguard and State Street -- managed $127 billion as of the second quarter of 2018, according to the latest available data from Morningstar Inc., up from $80 billion for the same period of 2015. Those three big issuers together account for about a quarter of assets, up from 2%.

“The ETF strategist space before, it was just really all boutiques and we kind of had the whole pie to ourselves,” says Rusty Vanneman, chief investment officer at CLS Investments, which oversees about $9 billion, some of which is in ETF strategies. Now, “growth is dominated by the Big Three,” he says.

Rivals Emerge

A crisis for ETF strategists five years ago gave the big boys their entry point. Massachusetts-based F-Squared Investments filed for bankruptcy after regulators found it defrauded investors, and 13 other firms were later penalized for repeating F-Squared’s false claims about the performance of one of its strategies.

That created an avenue for large asset managers to enter the market, and create packages of their own funds to compete with strategists. These ready-to-go collections, now known as model portfolios, usually ensure that investors stay within their provider’s chosen ETFs -- an appealing prospect for issuers.

“They decided, ‘You know? Let’s go in a different direction. In fact, let’s go right at them,’” says Bob Smith, the Austin, Texas-based president and chief investment officer of Sage Advisory Services Ltd., who’s been using ETFs for two decades. “They basically telegraphed to the world that the strategy part is meaningless. What’s really important is what’s inside and so, in a word, I think they cut us off at the knees.”

Modeling Success

Companies like Vanguard, which offers ETF models on its website, have built their portfolios on some of the same ideas espoused by strategists. But Rich Powers, Vanguard’s head of ETF product management, believes that there’s still room for the older pioneers and that they have a good relationship with these strategists.

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