We bring you two stories this week that celebrate the growth of ETFs in Europe. Rocco Pendola examined the ETF smorgasbord and I talked to Ally Wallace of Morgan Stanley Investment Management on the firm’s expansion into launching active ETFs in Europe. The numbers from LSEG’s Lipper this week show that August, traditionally a very quiet world for asset managers, saw inflows for global ETFs of USD245.8 billion – the numbers continue to astound in what is looking like another record year for our industry.
Wallace speaks of the research she has been conducting across Europe with different distribution groups.
“What is interesting to see here is where the neobroker is on the trajectory in Europe. From Germany to Sweden it can look very different so understanding regional idiosyncratic ways that they are coming to market is the challenge…coming to Europe has been very much about not replicating what already exists but bringing new concepts and investment capabilities to the market.”
Pendola was looking at overlap in portfolios where advisers may have not done the deep research. Arun Subbiah, founder and CEO of Meteor, a startup that uses AI to help investment professionals research and construct portfolios, told him: “Most advisers are still ticking a box marked ‘diversified’ without ever running the numbers behind it. The overlap checkers that exist are a blunt instrument, they will tell you two funds share similar top holdings, but not how those stocks behave together under stress, or whether you have quietly doubled up on the same factor bet times over.”
Global Development, Infrastructure & Real Asset Strategist, Mark Burns, has given us an In My Opinion this week, writing that tokenisation may improve the plumbing of an investment product, but it does not change the physical reality of the asset beneath it.
“The conventional ETF model contains a useful discipline,” he says. “Authorised participants can create and redeem large blocks of shares by delivering or receiving a defined basket of securities or cash. That mechanism helps keep the traded price of an ETF close to the value of its portfolio. It works because the underlying instruments are usually standardised, observable and capable of moving through established market infrastructure.” However, he warns: “Physical assets do not fit that pattern” and argues that we need a physical authorised participant function.
Beverly Chandler, Managing Editor
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