ETP interest appears to be on the rise

This article is part of
Growth in Exchange-Traded Funds - April 2014

Given the fact that exchange traded funds (ETFs) offer real-time exposure to a wide range of asset classes, all at a relatively low cost, many felt the regulatory shake-up ushered in by the RDR would see a strong uptick in the popularity of ETFs.

Today 27 out of 29 platforms in the UK allow access to ETFs with Cofunds and Skandia being the key exceptions.

Skandia’s view on the matter is that the highest demand is for fund-based solutions via platforms and that is what it has been focusing on.

Notably, according to data from research hub the Platforum, while funds accounted for some 90 per cent of platform sales in the final three months of 2013, ETFs notched up a mere 1 per cent. For its part Cofunds has stated that, as a result of an increasing number of clients wanting to access some less mainstream investments, ETFs are potentially in the planning mix for future development but the group has no timescales to confirm as yet.

ETFs have not, at least as of yet, reached the precipice of falling into the mainstream. But iShares head of UK, Mark Johnson believes the asset class is at an “exciting inflection point”, noting that in the US the advent of fee-based financial advice in the US some 10 years ago, really kickstarted an abundance of ETF usage.

He says: “We are now 12 months on post-RDR and we have seen a significant pick-up. My impression is that advisers like the low-cost access to markets that ETFs offer, particularly when they are looking to blend active with passive management.”

ETF Securities’ head of UK & Ireland, Neil Jamieson, also asserts that following the RDR there is growing interest from the adviser community, who wish to use ETFs as part of strategic and tactical asset allocation.

He says: “Education about the structures and uses of ETPs is therefore an important activity for providers. Over time, we would expect more and more advisers to use ETPs in portfolio construction.”

Adam Laird, head of passive at the UK’s biggest fund supermarket Hargreaves Landown says he has witnessed “growing interest” in ETF use among individuals. From a planning point of view, he says that it is becoming increasingly common for clients to use passive investments like ETFs along with traditional active funds.

He adds: “People often use ETFs for areas where it is hard to find good fund managers such as US Equity. There has been a perception that ETFs are only for sophisticated investors who day trade but this is not true.”

But City Asset Management research director James Calder admits while he has used ETFs in the past he thought he would be using them a lot more than he has. He says: “We did use them to access commodities, especially gold and we may look perhaps at a US version, given that active managers tend to struggle in beating the market there.

“We are not against ETFs but as we stand right now, while we do at times use trackers, we are more prepared to pay for decent active management.”