‘Low costs and liquidity lure investors to ETFs’

‘Low costs and liquidity lure investors to ETFs’

Investors and their advisers have been turning to exchange-traded funds over recent years thanks to their low-cost nature, Rachel Lord has claimed.

The head of Europe, the Middle East and Africa for iShares – part of asset manager BlackRock – said that as the product gained more traction in the UK, it would not be long before the European ETF industry, including the UK, hit its milestone of £680bn (US$1trn) of assets under management.

Reasons for its growing popularity among investors, she said, included product innovation, more confidence in the market and the cost-effective nature of ETFs, which tend to have lower total expense ratios than actively managed funds.

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She said: “We see growth coming from investors who have previously deployed capital using products traded over the counter – bonds and futures especially – who are turning to ETFs for the first time because of the liquidity and low costs.

“There is a clear trajectory ahead, and we are welcoming new investors to ETFs every day.”

Her comments came as the industry celebrated the fifteenth anniversary of European ETFs. The first ETF listed in London on 28 April 2000 was the iShares Core FTSE 100 Ucits ETF – it now has more than £3.7bn in assets under management.

Since 2000, there have been 2,269 different exchange-traded products in Europe, listed in 22 countries across the continent by 45 different providers.

Ms Lord said: “There have been many developments over this time, especially from funds tracking niche and alternative markets such as commodities and real estate. Alongside ongoing innovation in areas such as smart beta, we believe investors will continue to turn to ETFs when choosing their core equity and bond market-weighted investments.”

Key facts:

Global ETPs gathered US$36.1bn (£24.6bn) in March.

Total of Q1 flows reached US$97.2bn (£66.4bn).

Investors added US$7.6bn (£5.2bn) into Europe-listed ETPs in March.

Fixed-income ETPs had net inflows of US$4.3bn (£2.9bn) in March.

Energy commodity ETPs continued their ascent with US$2.2bn (£1.5bn) inflows in March.

Source: BlackRock ETP Landscape team

Adviser view

Nick McBreen, at Cornwall-based Worldwide Financial Planning, said: “There is an increasing number of references in the media to ETFs and their potential as an investment vehicle. It is worth just taking a moment to reflect on what they are.

“Advisers and clients should bear in mind that these instruments are significantly different to what many people are familiar with and comfortable using within their investment portfolios.

“I believe ETFs are appropriate for the more savvy, experienced and aware investor who is capable of understanding the risk profile, has appropriate appetite for risk with the sophistication of ETF markets and the capacity for loss similar to, and commensurate with, holding shares. The worst-case scenario could be 100 per cent loss of investment value.”