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Controversy distracts from the virtues of ETFs, says Ebner

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A roundtable debate sponsored by SPDR ETFs, the exchange traded funds (ETF) platform of State Street Global Advisors (SSgA), has concluded that the ETF controversy raised in Europe this year has distracted attention from their potential virtues.

Scott Ebner (pictured), global head of ETF product development at SPDR ETFs, told delegates at the event in London: “I’ve been shocked from a global perspective by the ETF-related discussions this year. A lot of questions have been asked about ETFs, which has in turn created a lot of misinformation and negative news. Unfortunately, this misinformation has overshadowed the true virtues of ETFs and the reasons behind their tremendous growth rates. ETFs have revolutionised the investment landscape, giving investors incredibly flexible tools that provide instant diversification to segments of the market that may have previously been expensive or difficult to access.”

He said that the merits of physical versus synthetic methods are less important to investors than first understanding how and why to use ETFs. The physical versus synthetic decision should come at the point when investors start product due diligence to determine which ETF best suits their investment needs. He said accusations that ETFs destabilised markets were also wrong: “The trading volumes of ETFs in Europe are still very small versus that of active investment. In reality, a couple of thousand ETF products are small compared to the number of funds in the Morningstar universe.”
 
Jose Garcia Zarate, ETF analyst at Morningstar, commented: “There have been a lot of negative comments about synthetic ETFs and not just from the press but within the industry. Instead of fighting amongst each other, they need to work together to publicise the benefits of ETFs.”

The participants in the roundtable agreed that the ETF industry is set to grow substantially with ETFs being used by a wider range of users in much more sophisticated ways. They also agreed that investors needed more education about ETFs.
 
Justin Urquhart Stewart, marketing director of Seven Investment Management, said the low costs of ETFs would be a key driver in their popularity. He said: “The primary issue is down to cost. If we are to have a low, low growth situation going forwards then that means costs will stick out like rocks through water.” He added: “The reliability of active managers to beat indexes over time has been called into question. If active managers wish to continue they have to provide better value.”
 
Stephen Doran, fund manager, HSBC Global Asset Management, said ETFs were good for markets because they added liquidity, especially in sectors such as emerging markets. He added that while education would be a great driver of growth for the industry, retail investors were still a long way from understanding synthetic ETFs. He said: “Synthetic ETFs are just not suitable for retail investors. There are due diligence requirements that preclude them from retail investors, but which institutions can do.”

 

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