Active managers across Europe need to get on the front foot to counter the rise of passives by launching their own low-cost solutions for key strategies, according to HANetf’s Hector McNeil.
With the majority of flows in Europe going into ETFs compared to active funds, and some of the latest advice propositions going ETF-only to keep overall costs down, the benefits of ETFs continue to be recognised by both the asset management community and a growing number of end investors.
McNeil said one way to ensure active managers can reap the rewards from this trend is for asset managers to launch their own versions of their top strategies, effectively providing a “light” version of existing active products.
“Asset managers need to look at what they offer and consider whether a competitor could replicate a version of their strategy in an ETF,” he says.
“If the answer is yes – and there are fewer and fewer strategies that cannot be replicated in today’s market – then asset managers need to recognise this and consider creating their own ETFs.
“But this is not a defensive move – instead it is a game-changing opportunity, allowing them to distribute products in a different way and access new asset bases, particularly millennials and cost-sensitive investors. The next generation of investors don’t shop like their parent did, they don’t consume media like their parents did, and they won’t invest like their parents did.”
Increasing numbers of asset managers are expanding their ETF or passive ranges already, and McNeil expects the trend to accelerate as the ETF market itself continues to grow.
However, he says asset managers considering launching their own ETFs need to look carefully at both what to launch, but also what to avoid trying to replicate.
“All active managers need to have a strategy with regards to the ETF market, and over the next few years we expect every asset manager that wants to benefit from this long-term trend to have an ETF strategist in-house,” he says.
“But the actual strategies launched by firms needs to be carefully considered. While it could be tempting to launch a more general ETF solution rather than focus on your best-seller, the broad index plays – such as US equities for example – are already extremely competitive on price. Rather than play that scale game, it makes more sense for asset managers to export their own IP via a lower-cost version of an existing strategy.”
McNeil and Nik Bienkowski founded HANetf – Europe’s first independent full services third-party provider of UCITS ETFs – late last year.
The business provides a turnkey solution for the growing number of asset managers seeking to enter the ETF market in Europe, through a platform which offers services including product development, compliance, operations, capital markets, sales, marketing and distribution.