Once upon a time, Lee Kranefuss unleashed an 800-pound gorilla on the ETF industry.

Now he’s back with something he believes could be even bigger.

If you’re an investor using exchange-traded funds, Kranefuss’s plans for the industry could directly impact your investing future, and dramatically change and increase the tools and options at your disposal.

But for right now, his next beast is little more than a baby, and the future is uncertain.

Kranefuss was the global chief of iShares when it popularized the fundamental idea behind the original exchange-traded funds, namely that you could cheaply and efficiently trade entire markets over exchanges with the same simplicity as buying or selling a single stock. From 2000 to 2009, Kranefuss — widely considered the godfather of the ETF business — built iShares into a $300 billion business, at which point the company was taken over by BlackRock.

The ETF industry, which amounted to a few billion dollars in the early 2000s, is now approaching $3 trillion, with iShares as the most powerful player.

Now Kranefuss is back, as executive chairman of Source, a relatively new European company that has grown to about $20 billion in assets and a spot in the top 10 among ETF providers across the pond.

Kranefuss and Source have eyes for something much bigger.

The company recently opened its first U.S. exchange-traded offering, the Source EURO STOXX 50 US:ESTX , which sounds just like any other new ETF — meaning an index-based product — except that it brings a premier foreign benchmark to America with superior pricing.

That’s a big part of Kranefuss’s concept at Source. Unlike a fund company that is saddled with pushing the house product or staying in line with its existing management concepts, Source can go out and work with any sub-adviser on any concept it thinks can work.

In Europe, Source has opened nearly 80 ETFs, and more than half of them already have surpassed $100 million in assets. That’s a strong sign of early success.

At iShares, Kranefuss virtually flooded the market with one of everything to see what stuck. With Source, he can be much more selective, and different, and the disparity is important because Kranefuss believes the business he helped nurture has “gone stale.”

“Indexing plays very naturally with an ETF, and by making that where everyone focused first, we were able to drive huge amounts of growth faster,” Kranefuss explained, “but what ETFs can do now is democratize investing, doing what iTunes did to music, where if you happen to be a listener from the U.S. who likes music from Mozambique, you can get what you want, and where if you like one song, you don’t need to buy a whole album, you pick and choose what you like.

“In ETFs, we can find people with good ideas or concepts and get it out there to see if there’s any followers,” he added. “We can see what investors want; we can bring them the best of what’s available.”

Source has one significant advantage over other companies trying to make a late-stage entry into a maturing business: its independence. Unlike Fidelity Investments — a traditional fund giant but a small player in ETFs that is expanding its lineup of actively managed fixed-income issues in the next few weeks — Source doesn’t have any franchise to protect.

Where companies like Vanguard and Fidelity want to expand their existing mutual fund business without taking away from it, and giants like iShares and State Street Global Advisors want to care for their turf, Source has the goal of upending the fund industry. That’s the same advantage Kranefuss had in his iShares days, with one new plus; iShares was focused on developing ETFs based on asset class — the indexing model — while Source is looking for the best ideas, and is agnostic to their space.

“We can work with the best managers on their best ideas,” he noted.

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Source has another edge, namely hunger. While everyone has expected giants like Fidelity and T. Rowe Price TROW, +0.40% to make a big splash in ETFs eventually, those established firms already manage gazillions of dollars. Their future ETF antics will barely move their top or bottom lines.

Source, by comparison, was built just to wage this fight.

The company won’t unleash a torrent of funds the way iShares did; Kranefuss acknowledges that “the world doesn’t need all the ETFs it has today.”

But he compared the ETF business — with the four leading firms (iShares, State Street Global Advisors, Vanguard and PowerShares) controlling nearly 90% of the assets — to the auto industry back in the 1970s, when no one thought new competitors could challenge General Motors, Ford and Chrysler.

“Back then, they thought, ‘This is how we did business five years ago, and it’s how we will do business five years from now,’” Kranefuss said. “A lot of things are about to change in the ETF business. It won’t be the same five or 10 years from now.”