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Year of growth ahead for ETFs: State Street
Exchange-traded funds crossed a “critical tipping point” in 2011 as the industry faced up to the challenge to overcome a negative reputation, Jim Ross of State Street Global Advisors has warned
Mr Ross, global head of ETFs for the firm, said in an open letter to investors that criticism of ETFs had been “misplaced and misguided”.
He added: “There is no question that the increased scrutiny of ETFs represents one of the industry’s greatest opportunities and challenges – improving investor education.
“With all signs pointing toward another year of robust growth for ETF adoption, asset growth and product proliferation, the volume of questions related to their structures and safeguards will also increase.”
Mr Ross claimed investors were still turning to ETFs for both long and short-term investment strategies .
He said: “The growing popularity of ETFs amid challenging market conditions has attracted attention from a wide range of other players, including traditional asset managers looking to enter the market, academics and consultants seeking to put the industry’s growth into perspective, the media and critics who have tried to blame ETFs for a host of problems ranging from a slowdown in the initial public offering market, to increased market volatility and systemic risks.”
He predicted that 2012 would be another year of growth for ETFs.
Mr Ross’s comments come after State Street launched an ETF education campaign in January, called ETF Fact or Fiction.
ETFs were drawn into controversy during 2011 after the the Basel-based Financial Stability Board warned that they could pose “systemic risks”, while the FSA also highlighted concerns about the product in its latest risk outlook.
This was followed by the Bank of England’s interim financial policy committee which advised the FSA to “monitor closely the risks associated with opaque funding structures, such as collateral swaps or similar transactions employed by ETFs”.
It was also revealed the Financial Industry Regulatory Authority in the US had been issuing warnings about ETFs since 2009.
The Serious Fraud Office also increased pressure on the UK’s ETF industry in 2011 after admitting it was conducting “high-level horizon gazing”.
Simon Walker, principal of Northumberland-based SG Wealth Management, said: “There is a worry about synthetic ETFs. There is a potential for abuse, as there always is with any investment that is obfuscated. Some of the pure index-tracking funds may well have a place, but complicating investment matters never seems to be the best course of action.”
