Advisors and direct investors alike increasingly enjoy an unprecedented array of access to new asset classes and most importantly, “peer” product competition across the Exchange Traded Fund (ETF) and overall Exchange Traded Product (ETP) landscape.
Whilst next month marks 15 years since Australia’s first ETF listed on the ASX, what we can be grateful for over the last 5 years is that we have seen rapid change, almost by stealth, across the product landscape with some 97 products being issued. Understanding and acceptance has enhanced markedly and enabling technologies continue to improve. Issuers have stepped up significantly to provide a diverse and dynamic product landscape with which to enable the acceleration of ETF usage and, occasionally, to escalate real price competition.
In particular, we now observe multiple products providing access across asset classes, including; Emerging Markets, European Equities, Global ex-Australia, Global Infrastructure, Global Property, Domestic Corporate Bonds and Global Bonds. Hedging strategies are increasingly employed, more Global Sector funds are imminent and thankfully, different indices are being used within asset classes. An example of this is Emerging Markets where 3 ETFs track 3 different indices from MSCI, S&P and FTSE – all providing notably different investment exposures to ostensibly the “same” asset class. The notable lesson is that not all funds that sound the same are the same. Understanding the differences goes to education, research and knowledge about the underlying investment exposures that can be assessed given the feature, unique to ETFs, of constituent transparency.
We’ve seen a classic example of peer competition in full force late last year when the iShares S&P/ASX 200 ETF (IOZ) changed its benchmark to the S&P/ASX200 to match that of the SPDR S&P/ASX 200 Fund (STW). Arguably, Australia’s first real “ETF fee battle” ensued and we now consistently see how a difference of just 4 basis points impacts investment decisions. Additionally, we have observed the rapid introduction of smart beta products and, especially in relation to Australian Equities exposures, this has forced advisors to re-think product allocations within and outside of the ETF / ETP landscape.
Given the extent of product landscape change, we re-assert our view that advisors and investors need to re-think the basis of how both products and issuers are selected to provide the desired investment exposure. We continue to see the “relative convenience” of being beholden to single issuers or indeed to a limited panel of issuers. Increasingly we see advisors simply outsourcing to an ETF SMA provider or robo-advisor rather than build and maintain ETF portfolios specifically for clients and, unquestioningly, their more specific needs.
In response to all of these factors, we have actively upgraded our ETF research platform to further enable advisors to develop, maintain and report on ETF and ETP portfolios. There are now 142 ETF / ETPs (4 imminent) across 8 issuers and we argue that more informed investment decisions are needed to ensure clients’ interests and investment needs are being best served.
Now, more than ever before, there is increasing need for ETF appropriate research combined with the appropriate tools that manage selection of superior ETFs whilst enabling the process of readily constructing, managing and reporting on ETP model portfolios end to end.
