What really happens before an ETF hits the market

Please note, this interview was filmed Friday 27 March, 2026

By the time an ETF arrives before you and me, neatly packaged, with slick marketing, and ready to trade, there has been plenty going on behind the scenes to bring that ETF to life.

But what are those steps, and what makes an ETF idea a ‘good’ one versus a ‘bad’ one? To find out, I spoke with David Tuckwell, the Chief Investment Officer at ETF Shares. He put it succinctly; 

“The last thing you want is to launch an ETF and find that no one’s really interested or no one really cares.”

In the interview above, Tuckwell pulls back the curtain on how an ETF is brought to life.

For a bit of fun, he also indulges some ‘interesting’ ETF ideas from the Livewire editorial team. Make sure to watch to the end for that Rapid Fire round. 

INTERVIEW SUMMARY

The growth story isn’t what it seems

ETFs have exploded in number, but Tuckwell is quick to challenge the narrative that this is all innovation. 

“A big thing to keep in mind… with the growth of the number of ETFs is a lot of it is really just duplication.” 

New listings often reflect repackaged exposure rather than genuinely new ideas. Existing strategies are relaunched in ETF wrappers or slightly tweaked versions, particularly as active managers bring unlisted funds to market. 

Sitting above all that are two primary forces driving things. First, distribution. 

“Having your product listed on Exchange is very, very powerful for sales and marketing purposes," says Tuckwell. It opens access to retail capital that is otherwise difficult to reach.

Second, vertical integration. ETF issuers are increasingly building products to populate their own managed account ecosystems, leading to what Tuckwell calls “me too products.”

Where ETF ideas actually come from

Despite the perception that ETF providers are forward-looking innovators, Tuckwell is clear on what really drives product creation. 

“The main one is fund flows… you want clear evidence that the market is going to consume your product.” 

Launching an ETF involves putting capital at risk, so demand signals matter more than theoretical appeal. Market gaps also play a role, particularly when a proven idea from offshore has not yet been brought to Australia. 

In practice, successful ETF ideas sit at the intersection of observable demand and identifiable gaps, rather than purely top-down macro views.

Turning an idea into a product

Once an opportunity is identified, the process becomes highly technical. On the passive side, it starts with index construction. Providers will either source an existing index or work iteratively with index providers to build one. 

“You usually go through this iterative prototyping… they have a crack at building you an index, you test it… and suggest some more ideas for improvement.” 

Timelines vary significantly. Simple exposures can be built quickly, while more complex strategies can take months and involve multiple providers. 

On the active side, portfolio managers play a central role. “The PMs at the end of the day are sort of your kingmakers in your active strategies.”

The real trade-offs: cost, risk and liquidity

Portfolio construction ultimately comes down to two core decisions: what goes into the portfolio and how much weight each position carries. From there, cost and risk considerations dominate. 

“The two main variables that drive up the cost… are the number of securities… and how many obscure markets… you’re holding.” 

More complex portfolios, particularly those with emerging market exposure, are more expensive to run and often require higher fees. 

Liquidity is equally critical. ETF providers must ensure portfolios can withstand trading flows without being exposed to arbitrage risks that could harm investors. “The last thing you want… is to be on the receiving end of these somewhat nasty index arbitrage trades", says Tuckwell. 

Backtests don’t build ETFs

While backtesting is often used in marketing, Tuckwell is blunt about its limitations. Instead, ETF construction is driven by forward-looking judgment. 

“What you're really going off is forward judgement… you want to skate to where the puck will be, not where it currently is.” 

That means assessing whether a strategy can deliver future earnings growth and whether investor adoption will follow.

The final hurdle and why ideas fail

Even after design and testing, an ETF must clear regulatory and exchange hurdles. The final step is ASX approval, which involves a detailed due diligence process that can take four to eight weeks. 

Despite all this work, many ideas still fail. The most common reason is simple lack of demand.

“You launch a fund and you find that no one really wants it or really cares.” 

Even well-constructed strategies can fall short if they do not resonate with investors.

The biggest misconception investors have

Tuckwell believes one of the most persistent misunderstandings relates to synthetic ETFs.

“There’s a completely negative mindset towards synthetic ETFs.” 

Yet in some markets, these structures can outperform traditional physical ETFs due to tax advantages. “They tend to outperform… because there’s a tax arb going on.” 

His message is clear: while derivatives-based products carry risks, they are not inherently inferior and deserve a more balanced assessment.

ETF

ETFS Magnificent 7+ ETF (HUGE)

Global Shares

View

ETF

ETFS US Quality ETF (BEST)

Global Shares

View

ETF

ETFS US Technology ETF (WWWW)

Australian Shares

View