Smith says the fund research houses are also serving to educate the financial planning community about what ETFs are, how they’re structured and what they are designed to do.
The managing director of iShares in Australia, Tom Keenan, says anything that gives “an independent, third-party endorsement of a product is very beneficial for advisers who want to use ETFs”.
“It solves a compliance issue for them.” Keenan says.
“Research is a critical piece of the ETF ecosystem that is falling into place and will help make ETFs more mainstream – a number of things have to happen for them to become more widely used, and research is one of them.”
Just as researchers say that not all ETF providers are created equal, so ETF providers say that not all research is created equal. Keenan ventures the opinion that “Morningstar is certainly leading the way”.
‘And the conclusions that they have drawn, we are very comfortable with’
“They’ve got a significant ETF research capability in the US that they’re very easily able to leverage,” he says.
“There’s no doubt that they’ve taken the lead in ETF research in Australia. And I think Lonsec is doing some good research as well.
“Everyone is still educating themselves on ETFs, and researchers and research houses have had to do the same.”
Keenan says the emphasis of research houses coming from a managed funds background is quite different from researchers from a stockbroking background. Broker research tends to focus on “trading ideas, and the research to back that up”, while the managed fund-style research “is more focused on the structure of the ETF and the ETF provider, and whether that ETF is going to deliver the outcome it says it’s going to deliver”.
“The next step in all of this is for researchers to start providing guidance on how ETFs are used in portfolios,” Keenan says.
“How do you build a portfolio? In time, we’re going to start seeing model portfolios containing ETFs being rolled out by research houses. That will proliferate when we get ETFs across different asset classes.
“Research houses can add value by providing guidance on how to implement asset allocation decisions.
“This is a natural evolution of the industry, but it does start to change, to a certain degree, the services that a lot of these research houses have been providing.”
