Although still a relatively small part of the investment universe, there is no doubt that exchange traded funds (ETFs) are changing the nature of how portfolios are managed.
Mark Wiedman, Senior Managing Director, Global Head of iShares and Index Investments at BlackRock told FundForum about the trends that were worth noting.
“Exchange traded funds aren’t particularly interesting,” he suggested. “What is interesting is how clients are using them in portfolios.
“It’s used as an investment vehicle,” explained Mark. “It’s an investment tool that offers an index exposure, and it’s low cost.
“It’s a security, it’s a way to trade. You’ve taken this bundle and put it up on the exchange, where it offers price transparency and secondary liquidity – you don’t need to go through a bank balance sheet.”
“ETFs are exploding the concept of active versus passive,” he said. “All portfolios are active, and in fact, the people who use ETFs are active managers.”
Value propositions are changing
So what impact did ETFs have on the value proposition that wealth managers could offer to clients?
“Choice is important,” statedPhilip Watson, Managing Director, Global Head of Investment Lab at Citi Private Bank.
“ETFs are building blocks, they facilitate, they provide a choice for clients to express particular exposures. Fundamentally, they are about expanding our value proposition,” he said.
According to Jan-Marc Fergg, CFA, Global Head of Wealth Products, Services & Insights at HSBC Retail Banking & Wealth Management, clients were becoming less interested in the products themselves.
“Clients are moving away from a product by product, feature by feature discussion and instead focussing on what their objectives are. They are less interested in understanding the engineering of a product; they are interested in the outcome of investing in it.
“What’s also important is how we serve them,” he added. “Digital support, online, and robotype advisors is where we are heading.”
Mark Le Lievre, Head of Content Management, Investment Products and Services (IPS) at UBS Wealth Management concurred, added that the nature of the business is changing.
“A key part of our value proposition lies in the use of technology to drive targeted, appropriate, customized advice to specific clients,” he explained.
“And both active and index-driven products are key to that,” he said.
What do they want from asset managers?
To conclude the session, all three put forward some ideas on what they now expected from their asset managers.
Mark’s number one request was to be brought into the fold early on. By brainstorming on products, he argued, they could bring their assets to bear on new funds.
Jan-Marc added two further requests;collaboration and fair value.
“The closer you are to us the better. You need to understand the needs of our clients,” he said. “Price is also important, and should reflect the product.”
Philip felt that there was a significant appetite for more niche and thematic strategies, and that working with asset managers to concoct and meet that appetite was where a fruitful partnership lay.
But Mark gave the most emphatic plea:
“I want to hear from managers who have clear strategies and can deliver a view.
“I want to hear from those who can differentiate themselves in some way. I don’t need another US large cap equity manager.”