By being able to filter through thousands of companies with the click of a button, Mr Parkin is extremely confident about iShares’ ability to compete with the hands-on expertise of active fund managers.
“With one click you can invest in a long-term structural trend that combines together anywhere between 90 and 400 stocks into one place,” he says. “The availability of data allows us to look at that in an enormous amount of scale and put it into an ETF in a similar way to an active manager.
“We basically get an enormous amount of information on each and every company. Now FactSet classifies companies. Rather than on the typical 11 sectors, it goes down another six levels of classification to allow us to really hone in on exactly what the company is doing.”
Not every company will be a winner
Not everyone agrees that EFTs represent the best way to gain exposure to specific investment themes.
While the option to hold a vast array of potentially game-changing stocks and pay lower fees may appeal to many, others such as Laith Khalaf, senior analyst at Hargreaves Lansdown, argue that an experienced manager is required to distinguish the Googles from the Yahoos.
“I’m not fully convinced that ETFs necessarily offer the best way to go about gaining exposure to particular areas because within that there might be companies that are winners and companies that are losers,” he says.
"Once you start down that route of filtering the universe in such a contrived way, I think you are better off going active. Actually getting an active manager to look over whatever you are interested in. Actually get an active manager just to identify the companies that are in that universe that are going to be winners.”
Taking comfort from historical performance data
Mr Khalaf is also concerned about the relative infancy of ETFs in the UK and, consequently, the lack of performance data available on them.
Without a track record to consult, he believes that investors are left in the uncomfortable position of being forced to put their faith in products that have yet to carve out a credible reputation.
“Passive works with plain vanilla indices,” he says. “FTSE 100 growth or the FTSE All-Share gives you broad exposure to the UK market.
"Once you start going into this more contrived, what is called smart beta area, I think you are really putting more and more faith into the product providers to create a product which is going to deliver good returns.
