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WisdomTree Europe states ETF focus to shift to performance


Hector McNeil, co-CEO of WisdomTree Europe, has announced that next year the firm expects the focus to move away from ETF pricing to a debate centred more on the performance of ETFs after fees, with the growth and success of smart beta continuing, and eventually leading to active ETFs.

 He writes: “The pricing of core ETFs has already arguably won the battle with mutual funds when it comes to the provision of passive trackers. Now we are seeing a shift in focus in terms of investor expectations as they become more aware of the opportunities and breadth of asset management benefits the ETF wrapper can deliver for them.
“We are yet to see this focus on performance after fees in the ETF space to the same extent as exists in the US, but as smart beta picks up momentum in Europe we believe it to be the direction of travel over the next few years.”
McNeil believes that rather than focusing on whether they can get US equity exposure for 4bps or 5bps from different providers, it will be the type of exposure investors are getting which the firm expects to become more important.
“Now transparent, rules-based smart beta strategies are available for access to income, performance and diversification, it means smart beta can offer investors the chance for better risk-adjusted returns over the long run in different market environments,” he says.
The reasons behind the shift to smart beta lie in the fact that everyone along the value chain, from the adviser to the investment manager to the product provider, is under increasing pressure to deliver value added strategies for investors, McNeil says.
“Offering tailored products which suit different macro environments – for example by providing exposure to European exporters with the euro hedged against the dollar, in the expectation of capturing gains from a fall in the value of the euro – enables all parts of that chain to keep clients happy.”
While the focus on specific returns across the passive or passive alpha space is happening to an extent already, it lags far behind the active space where it is more central, says McNeil.
“As smart beta products continue to expand to replicate more and more complex strategies, it will become increasingly important. It will also help shine a light on mutual funds claiming they create alpha and therefore charge high fees, but in reality hug (or even worse under-perform) core benchmarks.
“Coupled with the increasing freedom for investors to switch from one share class to another without having to incur high switching fees and unnecessary taxes, these products will take tactical asset allocation to the next level for many clients. But amid all this innovation comes the need to deliver exposures investors want, and therefore transparency and performance remain central to ETF innovation,” McNeil says.

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