Wes Gray

ETF strategist and founder of Alpha Architect and ETF Architect.

Mentions

Appeared in

Discussed in

Key positions and views

Investment backtests produced by asset managers selling the product are inherently biased and should be discounted by 99%. A credible backtest must show periods of significant underperformance and career risk.

New ETF entrants should not compete with giants like Vanguard and BlackRock on scalable beta products, but instead focus on boutique, niche strategies where specialized expertise provides an edge.

Concentrated factor investing is a superior approach but requires a minimum 10-year investment horizon to navigate the inevitable periods of volatility and underperformance.

New ETFs, even those with 100% systematic strategies, should almost always use an 'active' fund structure due to lower overhead costs and greater operational flexibility.

The ETF wrapper is unsuitable for truly capacity-constrained strategies, such as micro-cap investing, because it cannot be closed to new capital to limit asset growth.

Podcast consensus on Gray

Points of consensus

▶The economics of launching an ETF have become increasingly demanding, with rising seed capital requirements (from $5M to a recommended $25M, and soon $50M) and significant ongoing operational costs.Apr 2026

▶To succeed, smaller ETF sponsors must avoid direct competition with market giants like Vanguard and BlackRock by focusing on specialized, boutique, or niche strategies that are not easily scalable.Apr 2026

▶Effective factor investing requires a highly concentrated, high active-share portfolio, a departure from 'closet indexer' funds that only make small tilts away from a benchmark.Apr 2026

▶Investors in concentrated, systematic strategies need a long-term horizon, specifically cited as at least 10 years, to withstand inevitable periods of underperformance.Apr 2026

Points of debate

▶Gray advocates for pursuing niche strategies, yet he identifies the ETF structure's inability to close to new investors as a primary disadvantage, creating a conflict for capacity-constrained strategies.Apr 2026

▶He expresses a personal aversion to 'gimmicky' and expensive products with non-transparent costs, while his firm offers complex strategies like tail-risk and managed futures replication that require deep investor understanding.Apr 2026

▶Gray states a new ETF needs 3-5 years to establish its market story, but simultaneously requires his own investors to commit to a 10-year horizon, highlighting a potential tension between the timeline for market viability and the timeline for strategic success.Apr 2026

▶He advises new entrants to almost always use an 'active' fund structure for its flexibility and lower overhead, even for 100% systematic strategies, challenging the conventional wisdom of using passive index-based structures.Apr 2026

Key themes

▶The Economics of ETF EntrepreneurshipApr 2026

Wes Gray provides a detailed breakdown of the financial realities of launching an ETF. This includes startup costs of approximately $50,000, ongoing annual costs around $200,000, and a market-perceived break-even AUM of $25-$50 million. He highlights that the minimum recommended seed capital has inflated from $5 million to $25 million, and he expects to raise it to $50 million soon, primarily to signal credibility.

The ETF market is maturing and professionalizing, with rising capital requirements creating a significant barrier to entry that favors well-capitalized, serious players over casual experimenters.

▶A Contrarian Philosophy on Investment StrategyApr 2026

Gray champions a rigorous and skeptical approach to investment management. He believes credible strategies must show periods of significant underperformance and career risk in backtests, and he advises discounting backtests from product issuers by 99%. His firm's strategies are intentionally concentrated and high-conviction, requiring a minimum 10-year investor commitment to succeed.

Gray's philosophy is designed to attract a self-selecting group of highly disciplined, long-term investors, filtering out those who are unwilling to endure the volatility inherent in high-alpha strategies.

▶Strategic Positioning in a Dominated MarketApr 2026

Gray characterizes the ETF landscape as dominated by 'monopolistic competitors' like BlackRock and Vanguard. His core strategic advice for new entrants is to avoid competing on broad market beta products. Instead, he urges them to focus on boutique and niche strategies that require specialized expertise and are not massively scalable.

Gray views the ETF market not as a monolithic battleground but as an ecosystem with protected niches where specialized expertise can be a durable competitive advantage against incumbents' scale.

▶Mastery of ETF Structural MechanicsApr 2026

Gray demonstrates deep knowledge of the ETF wrapper's technical details, from its primary liquidity source (market makers) to its key disadvantages (daily transparency, inability to close to new capital). He provides specific advice, such as using an active fund structure for operational flexibility and leveraging Section 351 for tax-free seeding. This expertise underpins the services of his firm, ETF Architect.

For Gray, the ETF structure is not just a passive container but a tool that, when understood and optimized, can provide a significant competitive edge in cost, flexibility, and tax efficiency.

Source episodes

Sentiment over time

Not enough data for timeline

Changes over time

Circa 4-5 years ago

Wes Gray states that the minimum recommended seed capital to launch a credible ETF was approximately $5 million.

Present Day

The minimum recommended seed capital has increased fivefold to $25 million, a shift driven by the need to convey credibility to the market rather than operational costs.

Present Day

Gray outlines the current costs for an ETF launch: a $50,000 all-in startup cost and around $200,000 in ongoing annual operating expenses.

Near Future

Gray anticipates raising the recommended minimum seed capital again, to $50 million, further increasing the barrier to entry.

Suggested prompts

How does Wes Gray reconcile his advice to pursue niche strategies with the ETF structure's inability to close to new capital, a key feature for capacity-constrained funds? &nearr;Given Gray's 99% discount on backtests from product sellers, what specific, verifiable evidence does he believe is sufficient to establish a strategy's credibility before it has a live track record? &nearr;How do Alpha Architect's complex products, like the CAOS tail risk ETF, align with Gray's stated aversion to 'gimmicky' funds with non-transparent embedded costs? &nearr;What are the potential survivorship biases in Gray's observation that a new ETF needs three to five years to successfully establish its story in the market? &nearr;

Key concepts

ETF Launch Costs 1 ep Seed Capital Requirements 1 ep Factor Investing 1 ep Backtest Credibility 1 ep ETF Structure (Active vs. Passive) 1 ep Market Competition 1 ep Alpha Architect Products 1 ep ETF Liquidity 1 ep Investment Horizon 1 ep Niche Strategy 1 ep

Notable quotes

“if it's a back test and unfortunately it was produced by an actual firm that sells the product you just have to discount it damn near 99”

Wes Gray · At The Money: Finding Alpha via Unique ETF Strategies | Masters in Business

“I would basically focus on things that Vanguard or iShares can't do well, which is usually going to be very boutique, very niche strategies...you're never going to beat Vanguard at delivering scale trillion dollar market beta.”

Wes Gray · At The Money: Building an ETF | Masters in Business

“It really does require kind of this 10-year horizon and a lot of understanding of the process and why it works.”

Wes Gray · At The Money: Finding Alpha via Unique ETF Strategies | Masters in Business

“You're looking at a 50K startup soup to nuts, which is not the bad news. The bad news is the ongoing costs to deal with all the aspects you just talked about. And, you know, it's plus or minus, but you're looking around 200K a year.”

Wes Gray · At The Money: Building an ETF | Masters in Business

Report last updated: Apr 21, 2026

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