I surmise that fully duplicating ARK INVEST's ETFs may violate intellectual property law, so I utilise 'mimick' instead. ARK's website exhibits each of their ETFs' portfolios. So why haven't other ETFs providers undercut them, at a lower MER?

ARK, and its CEO Catherine Wood, is popular on Reddit and on CNBC.

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    $\begingroup$ (-1) This question lacks context. What is "ARK INVEST's ETFs 100%"? Could you please explain that instead of writing about the popularity of CEO Catherine Wood? (which seems irrelevant to your question) Also why do you think people would want to undercut this? There are a lot of cases when undercutting an offer is not profitable, e.g., I do not undercut most offers on Amazon. $\endgroup$ – Giskard Oct 3 '20 at 6:05
  • $\begingroup$ @Giskard Sorry. I emended "ARK INVEST's ETFs 100%" now. I meant replicating ARK INVEST's ETFs completely or 100%. "Also why do you think people would want to undercut this?" Because then Vanguard or iShares can profit off former purchases of ARK's ETFs? $\endgroup$ – NNOX Apps Oct 3 '20 at 6:10
  • $\begingroup$ So basically your question is, if one company is making money on an ETF, why do other companies not offer the exact same ETF, perhaps at a lower price? $\endgroup$ – Giskard Oct 3 '20 at 7:10
  • $\begingroup$ The premise seems to be that having the fund holdings is extremely useful. In reality, having the portfolio listing offers a fund manager only a small amount of useful information. Most popular ETF’s track indices, and if you pay the index company the licensing fee, you get the index composition. There’s still a lot more work to do in managing the fund after that point. $\endgroup$ – Brian Romanchuk Oct 3 '20 at 12:42
  • $\begingroup$ Another issue: it’s hard to market a fund whose marketing materials consists of “we are going to mirror the holdings of another fund.” What happens if that other fund stops publishing its holdings? I think you need to explain a bit further how this “mirroring” is supposed to work. $\endgroup$ – Brian Romanchuk Oct 3 '20 at 13:23

I will try to discuss this without veering too far into opinions.

Firstly, it is entirely possible for investors to copy a portfolio that has its holdings public. Anecdotally, I’ve heard of retail investors doing exactly that. However, the question is whether another fund could market itself using that strategy.

  • Saying that “we want to copy another fund’s holdings” seems awkward. Your fund would have obvious implementation risks. If the other fund hides its holdings, and then what do you do? That represents massive implementation risk, and I doubt that any competent institutional investor would touch such a fund, even if we put aside legal risks (and fair play issues). Meanwhile, it doesn’t sound like it would make great advertising copy.
  • Just tracking holdings is not trivial. It takes some expertise just to track an index, where the holding weighting change in a somewhat predictable fashion.
  • If the fund is an active fund, you normally market it on the basis of your firm’s expertise to beat an index (or offer absolute returns, or whatever). Even if you just reverse-engineered somebody else’s strategy, you would market it as your own active strategy that is better than competitors’ strategies.

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