The fee war was supposed to be all but over in the ETF industry, with dominant fund companies led by Vanguard, BlackRock and State Street pushing fund fees as close to zero as they can get. But Corgi Invest, the new ETF arm of VC-backed fintech Cori Insurance, has other ideas.
The San Francisco-based startup, which recently reached a valuation of $2.6 billion in its latest funding round, came out of seemingly nowhere staring last December to launch a massive suite of ETFs — 197 and counting. By the end of the year, it expects to have more ETFs than the largest issuer in the U.S., BlackRock, Corgi CEO Nico Laqua said on this week’s “ETF Edge.”
In some cases, Corgi is going head-to-head with the largest ETF companies in core areas of the market — it has an ultrashort bond ETF, for example, which has been among the most popular recent core fixed-income strategies from the fund giants, as well as a handful of other bond options out farther on the treasury curve. And its ultrashort bond fund does come in at a lower expense ratio than the already low-cost offerings from the fund giants.
But Corgi has also issued a challenge to ETF managers that have boomed in recent years with more trendy, niche strategies such as buffered income funds that limit downside risk in the stock market, as well as single-stock ETFs that allow for outsize bets on big names from Tesla to Nvidia — and all of which charge a lot more annually to investors than the core stock and bond index funds from the ETF giants. Corgi’s approach to leveraged ETFs also includes outsize bets on sectors of the market and secular themes, such as AI-themed trades.
Its buffered income funds are currently charging an annual fee of 30 basis points to investors. Recent research on buffered funds show expense ratios that typically average 70 basis points and above. Corgi’s Tesla 2x ETF has an expense ratio of 20 basis points, versus competing products that charge fees as high as 95 basis points.
As an insurance company, Corgi stands to benefit from the new ETF arms race it has started. It needs to invest what is known as “the float” from its premiums in the markets, and that became a big motivating factor for the company get into the fund business. It can serve itself and its insurance customers with lower fee ETFs as places to allocate the float rather than going out and investing in higher-cost products, Laqua said.
But the fintech’s focus on using technology, specifically AI, to build a more efficient business model within the insurance industry was also a significant factor leading Corgi to ETFs, which were not in the original business plan.
Laqua said highly regulated businesses are often the ones that are the hardest to disrupt, but AI is knocking down the barriers to entry. Use of AI has been critical to the company’s ability to launch so many ETF products in such a short period of time, he said. That’s because the process of regulatory approval comes down to written language skills, and that is a task that AI is very good at, Laqua said, and he added it is among the reasons why he believes before long the company will be the largest issuer of ETFs in the U.S. He also says that no matter how long it takes, the company will patiently wait for investors discover it, and over time, Corgi is betting that it will benefit from the same asset-gathering force in the fund world that has led Vanguard, BlackRock and State Street to a combined $3 trillion: low-cost wins in the end.
Watch the full “ETF Edge” show above to hear directly from Laqua on his company’s plans to upend the ETF market. He also went deeper into Corgi’s strategic thinking in this week’s “ETF Edge” podcast.
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