London, 14 August, 2018
UK asset managers have three years to launch ETF strategies or else they run the risk of failing to get new products off the ground, HANetf has said.
As the UK and Europe’s asset management industries continue to follow the path set in the US, ETF growth is outstripping mutual funds, with flows far in excess of sales of legacy products.
More and more asset managers are reacting to this shift by launching their own ETFs, with a number of well-known groups launching such products this year alone.
However, for those yet to be convinced, Hector McNeil, co-CEO of HANetf, warns time is fast running out.
“An ETF is just a piece of technology which has streamlined the investment process, and essentially digitised investing,” he said.
“However, this piece of technology is increasingly important when it comes to distribution, and unless asset managers start to implement such solutions within the next 36 months, it may be too late for them.”
McNeil explained it takes a number of years for ETFs to gain recognition and momentum, and reach a size where they are sustainable from a cost point of view. As such, unless asset managers take them seriously now, they may fail to gain enough assets to make them viable as products for their businesses.
“It can take two to three years to get traction in an ETF, and so if asset managers have not launched these solutions by 2021, they could struggle to get them off the ground,” he said.
“Asset management groups have told us that they are holding back from creating an ETF strategy because they fear cannibalising existing funds, have concerns around the cost of launching, and worry that, with so many ETFs already available, they would struggle to garner interest, but many of these fears are overblown and can be overcome by engaging with the ETF industry more closely.
McNeil highlighted fears over existing monopolies as one such area that was actually less of an issue if asset managers focused on creating ETFs for specific strategies.
“There is no monopoly in active ETFs built around specific products at the moment, so that is an opportunity for asset managers, and the cannibalisation and cost points are also often overstated,” he said.
McNeil added while it made little sense launching products where price and scale were the only factor – such as FTSE 100 trackers – there was a much wider business case for launching other products.
“The fact is if they don’t have a solution in this space soon, someone else will take their slot, so they need to consider how best to approach this growing market, especially as the way people invest is changing, becoming more suited to ETFs than legacy products like mutual funds.”
HANetf recently launched a white paper looking at the case for asset managers launching non-transparent active ETFs. This followed its first white paper looking at why and how asset managers should bring ETFs into the European market.