When Frank Spiteri was asked about setting up an exchange-traded fund (ETF) desk at Peel Hunt a few years ago, he had to admit to the then-chief executive, “I don’t even know what ETFs are”.
Now he is heading up UK and Europe distribution at ETF Securities, a sizeable provider of the products. Needless to say, for much of his career, Mr Spiteri has prioritised educating retail investors about these passive vehicles, having come to the realisation he was not alone in having little, if any, knowledge of the market despite its prominence in the US.
He recalls: “I realised there was a huge void when it came to education around ETFs. People didn’t know what was available to them in the ETF world and they didn’t really understand ETFs.
“I embarked on education, toured all the dealers around the City, I became a centre of influence, so to speak.”
He continued in his mission when he started work at ETF Securities in 2013.
“We [found] a lot of people out there had taken institutional education and tried to convert that to retail. It became a bit too complex for retail so we did it the other way,” he explains.
Consultancy ETFGI’s March 2016 global industry report states ETF Securities amassed the second-largest share of net ETP inflows in Europe in the first quarter of 2016, at $2.1bn (£1.5bn).
But, as Mr Spiteri points out, it has taken longer than the industry expected to gain traction among UK financial advisers. He says: “I joined [in] January 2013, that was the day the RDR kicked in and I think everyone in the business sat on the sidelines, thinking ‘once that starts we’re going to see ETF assets fly’.
“That didn’t happen, it was never going to happen, it was always going to be a steady increase – it was going to be three to five years. I don’t really anticipate seeing huge retail – as in financial adviser – pick-up until this year and out to about another two years from now, when you’re going to start seeing financial advisers using ETFs.”
He observes most advisers spent 2013 adapting their business models post-RDR. Then, he notes: “Advisers spent 2014 thinking, ‘how do I change my proposition? How do I make it scalable?’ That’s when people started to think about modelling portfolios using ETFs.”
One problem holding ETFs back from being more widely used in the industry is the technicalities of trading them. Mr Spiteri admits there are still some “infrastructure hurdles” to overcome.
“Most advisers are on platforms, [and] most platforms are quite costly when it comes to trading ETFs. When it comes to rebalancing in portfolios it’s costly and it’s not easy,” he says. “It’s not like a unit trust where you can put exactly the amount of money into a unit trust that you want to put in.”
There is also the issue of availability, with some of the main platforms in the UK still not offering these products at all – Cofunds and Old Mutual Wealth have not yet begun offering ETFs, while Fidelity’s FundsNetwork only recently started providing the products to clients.
He says: “[Platforms] like Ascentric, Novia and Raymond James have said, ‘we’re going to set our proposition so we can be at the forefront of ETF trading for financial advisers and wealth firms’. They are seeing growth in their platforms because of that. But also, for financial advisers, it takes time to completely change your business model and it was never going to happen overnight.”
| CV - Frank Spiteri |
2015 – present Managing director, head of distribution, ETF Securities 2014 – 2015 Co-head of European sales, ETF Securities 2013 – 2015 European head of retail, ETF Securities 2011 – 2012 ETF trading and sales, Peel Hunt 2003 – 2011 Equity derivatives trader, KBC Financial Products 2002 – 2003 Equity trader, KBC Financial Products 1999 – 2002 Associate director, KBC Financial Products 1997 – 1999 Assistant manager of operations, Citi |
So what are his plans for increasing the distribution of products across the UK and Europe?
He explains: “You can’t have a distribution strategy that works across every region in Europe – it doesn’t. Every region has to be considered in its own right and to do that we look at each region and we have to understand it. What assets are available in the region? Who are the decision makers? What segments of the market do they sit in – are they execution-only, are they financial advisers, are they private banks?
“Then we look to our product range and think, ‘what offering do we have that fits as a solution for what they’re trying to achieve?’”
By all accounts this strategy is paying off, with ETF Securities’ early 2016 inflows second only to those of BlackRock’s iShares, according to ETFGI. Flows were buoyed by the firm’s gold product – the business held a 37.3 per cent share of the commodity ETP market in Europe by the end of April this year.
“Obviously sentiment around gold has helped, but our dedicated distribution, understanding of clients, understanding what they’re trying to achieve and how they’re achieving it, and providing solutions has definitely benefited us,” Mr Spiteri says.
He adds the company’s particular strength differentiates it from larger providers of passive products, such as iShares and Vanguard.
He states: “Vanguard and iShares really are those equity and fixed income specialists, they look at the vanilla benchmarks in those equity and fixed income segments, they dominate that region. But if you look at ETF Securities, we dominate the commodities segment of the market.”
But he observes over the past few years ETF Securities has diversified into other asset classes. For example, its short and leveraged platform is the third-largest in Europe by AUM. “That allows investors to take either inverse positions where they benefit from a fall in that asset class, or leveraged upside where if the market moves up, they get leveraged returns,” he adds.
The company has also teamed up with RoboGlobal to offer access to the robotics sector, bringing to market what Mr Spiteri says is the first European robotics ETF. A partnership with Lombard Odier Investment Managers has also brought the launch of a range of fundamentally weighted fixed income products.
He notes: “We look at asset classes that we want to access and think our clients want to access, and find best-in-breed partners to bring to market a range of products for that asset class.
“Lombard Odier is a prime example where we wanted to look into the fixed income market. What did we want to do differently? Most ETFs out there access fixed income from a market cap perspective. We wanted to look at the fundamentals and we wanted to have an index based around the fundamentals.”
The company’s most notable achievement, however, remains its gold offering. Mr Spiteri notes the company’s founder listed the world’s first gold exchange-traded contract (ETC) in Australia back in 2003.
“He then came over to Europe in 2006 and he did the same here in conjunction with the World Gold Council,” he continues. “What ETF Securities is good at is giving access to asset classes that previously had been hard to access. Suddenly, gold became a far easier-to-access asset class. Private banks, historically, would have to buy gold bars and vault them and there were costs associated with that, risks associated with that – the ETC did away with all that.”
And he sees demand for gold among retail investors being driven by fear. “There was Brexit; there are negative interest rates; and now there’s the concept of putting your money in the bank and it being [worth] less a year later – that doesn’t appeal to people. People are now considering gold as a store of value, more so than ever before.”
One might expect to be able to predict the answer when asking where Mr Spiteri stands on the active-versus-passive debate. He concedes: “There’s a place for both within anyone’s portfolio,” but adds: “The thing about ETFs, which no other vehicle can offer, is that range of asset classes you can access. I can’t think of any asset class now that isn’t accessible via an ETF, whereas other vehicles, like mutual funds or investment trusts, just don’t have that range of asset classes available to them.”
