Lehman Brothers have now entered the ETF fray (actually, their product line up contains exchange traded notes) and they’re branded as Opta ETNs. Well this is an interesting development and one that I don’t find very surprising.

Let’s think about the ETF industry for a minute (I am aggregating ETNs and any other derivative of this type of instrument … no not that derivative … into the term “ETF”). Are we moving more and more towards alternative asset classes? Are we adding sexier functionality to products? Are actively managed ETFs on the horizon? The answer to these questions is not just “yes” but we’re basically there. If the ETF industry is less about beta and more towards something else … some alternative or exotic or “non-standard” beta and even possibly (wow!) alpha then watch out. Investment banks are going to jump in and then some.

Why wouldn’t they? Once you move away from the more traditional views of passive management, you’re moving closer to the I-banks sweet spot. The higher fees (margins) don’t hurt either.

One of the Opta ETNs covers commodities in general with a fantastic ticker symbol (”RAW”). Another covers the hot topic of the day, agriculture. And the last one brings some competition to PSP in the private equity space. Note how Lehman uses the word “Beta” in the commodity ETNs but not the private equity ETN. I agree … private equity is no asset class.

Regardless of classification, Lehman is entering the ETF/ETN space focused on alternative investments. It would not surprise me one bit if other I-banks enter in a similar fashion. Many, like Merrill Lynch have publicly spoken on their hedge fund replication products … they could be turned to ETFs. There are many ETFs that are in the middle of regulatory approval manufactured by existing ETF providers both large and small (firms that is) that, when launched in the market, would have no competition. These would be rather esoteric asset classes or strategies such as carbon credits or 130/30. Again, I-banks live and breath these markets and strategies and unlike startup ETF providers have the cash (some, thanks to their new friends, the Sovereign Wealth Funds) to make a real go at it.

If the I-banks do jump in to the ETF marketplace in a big way, there could be significant fallout. More products and more competition would make it harder for the many new entrants in the field (that are not I-banks or backed by them) to not only establish themselves but grow in a significant manner. Like mutual funds, hedge funds and other financial products, ETFs are sold not bought … just find out who makes the big money at these firms. I don’t see how the little guys could go up against a marketing machine heavyweight like a Lehman, Goldman, Merrill or Bear.

Worse still, I wouldn’t want to be a mutual fund right about now. Not only do they have to keep up with their lobby against the favorable tax treatment of ETNs but they must also be thinking about how to stop this whole active management ETF train from leaving the station. Too late … I think that was the whistle and last call.

Well, if you welcome competition (and you should), hopefully the average ETF management fee will at least go down … wait, we’re talking Wall Street I-bank heavyweights right? Check that. Don’t hold your breath.

A little over a year ago is when I really started getting out to industry conferences as a speaker. I had done a few here-and-there in 2005 and 2006 but nothing like now. I suppose that as a blogger, albeit a part-time blogger at best, conferences have become a logical next step on this particular tangent in my career focusing more on investing management from a “media outlet” point of view rather than a practitioner’s. Truthfully, I never saw any distinction between the two and I’ve always hoped what differentiated me from others is my past and present work as a professional market participant. Same can be said for guys like Roger Nusbaum, Tom Lydon and Barry Ritholtz to name a few … I’d consider myself very lucky to be compared with any of these guys.

More importantly, I strongly believe that writing down the thoughts in my head about a particular new ETF, derivative contract or interesting industry development is, in my opinion, a fairly novel way to “keep the knife sharp”. Portfolio construction is tough enough as it is but with new products and services continually popping up, filtering the good from the not-so-good is a worthy exercise. Interestingly, I found that the ETF assembly line slowed down enough last summer for me to go on hiatus (thus, the nearly zero posts in the past eight months). There have been quite a few new arrivals, some actually a bit interesting but somehow, not enough to get me excited and write about them. Or maybe I’ve just been lazy. Perhaps some laziness but also a bit of consulting work thanks to the blog and even more due to the conference speaking.

Thus, the conference speaking has not only been an additional forum for me to assert opinions/ideas and discuss/debate them but also to see where that sort of dialogue takes me. And along with this blog, these conferences have taken me in many interesting directions. Funny, but that could be taken in many ways. For example, here’s my speaking calendar as of now for 2008:

Inside ETFs Conference, Florida
o January 10-11, 2008
o http://www.insideetfsconference.com/index.php?Itemid=295&option=com_content

Indexing & ETF Investments Asia 2008, Singapore
o February 27-29, 2008
o http://www.terrapinn.com/2008/iia/

DICE Emerging Markets 2008, London
o March 11-13, 2008
o http://www.terrapinn.com/2008/DICE/index.stm

8th Annual US World Series of ETFs “East” Conference, Florida
o March 26-27, 2008
o http://secure.imn.org/~conference/im/index2.cfm?sys_code=20080331_IM_0036&header=on

Base Metals Investment Summit 2008, New York
o April 1-2, 2008
o http://www.iqpcevents.com/ShowEvent.aspx?id=49544&details=69950

Financial Advisor Symposium, Las Vegas
o April 16-18, 2008
o http://www.financialadvisorsymposium.com/lasvegas/main.asp

Commodities Investment World MENA 2008, Dubai
o May 26-27, 2008
o http://www.terrapinn.com/2008/ciwae/

ETF & Indexing Investments Europe 2008, London
o June 24-27, 2008
o http://www.terrapinn.com/2008/etf/

Quite a bit in terms of market coverage as well location (so as I said above, “… in many interesting directions.”)

The last event listed above is still tentative (in terms of my involvement, that is) as are a few more I am in discussions with at this time. This list was a lot shorter only one month ago. I’ll bet that in another month or two, I’ll be set for the year. My aim is to limit myself to no more than two events per month with likely a quiet July/August. Clearly, most of the events are focused on ETFs/indexing but, perhaps not surprisingly there are other conferences covering specific areas of the capital markets or investor types that have sections dedicated to beta and in most cases that means ETFs.

I’m not entirely certain, but my guess is that only three years ago there may have only been, at most, a half dozen conferences entirely dedicated to ETFs/indexing with all but perhaps one in the US. Today, not only would I say that there are, on average, at least two ETF/indexing events per month globally but from the above you can see that the interest in passive instruments and beta has expanded beyond the US albeit ever so slowly and in a very limited manner. Internationally, the interest has always been there of course, but now we’re seeing greater product development and overall acceptance of ETFs beyond the rather saturated US marketplace.

Still, as explicitly stated at an ETF/indexing conference I recently attended in Hong Kong, ETFs have a long way to go globally. Aside from the fact that that was the first mainstream ETF/indexing conference I had ever come across in the region (there have likely been a few in the recent past) another strong indicator for me was the fact that the event had a rather small group in attendance. From the discussions I had with many at the event, it was not surprising. In general, the consensus is that East Asia still wants to search for alpha (via hedge funds) rather than focus on low cost beta exposures (via ETFs). Who can blame them with all the market volatility especially in the region? But the stats don’t lie and one can see that the ETF growth internationally both in the number of funds and in “assets under management” is similar to the US perhaps as far back as ten years ago. A slow and steady climb will continue for a few more years and regardless of bull or bear markets, there will be an explosion in the ETF marketplace as investors realize that the beta/alpha combination (ETFs plus hedge funds/private equity/other alpha generators) makes sense for them. We have already seen major indexing and ETF providers build operations internationally including the Pacific rim … the speaker list for the upcoming event in Singapore confirms this.

Speaking of Singapore (the first event listed above), it’s the next ETF/indexing conference in the East Asian region and my first time as an event chairman. We’ll see if the turnout is better than what I saw in Hong Kong only three months ago. While I’m sure the size and scope will be nothing like, say, the Superbowl of Indexing I will be interested to see if there’s some growth at least in the turnout. The attendance at a conference might seem trivial but I’ve been at quite a few over the past decade or so and the one thing I’m certain of is that the number of people attending conferences is proportional to the market interest in its area of focus which usually is at its peak near the same time as that of the market.

Aside for one event (Las Vegas) the conferences shown in my list above are generally for professionals although I don’t suppose there’s anything stopping a keen private investor of any sort to attend. Gauging the market situation with industry conferences is one thing but it may be even better to consider conferences geared towards the private, self-directed investor as they’re often the last to join the party.

Now how about all those conferences to “teach” you how to go about buying and flipping real estate … you know the ones on TV shown late at night along with food processors and exercise equipment? Where’d they all go? Almost too easy as a long-term market signal. But as with many sell signals, I’ll bet those commercials came off the air too late.