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Boutique players face uphill battle in ETFs, warns veteran

Boutique players face uphill battle in ETFs, warns veteran

Newer and smaller entrants into the ETF market are struggling to compete with giant asset managers, according to ETFGI’s co-founder Deborah Fuhr.

Sector veteran Fuhr said boutique-style companies are struggling to take market share from more established players.

'We are seeing a lot of growth in terms of new providers and indices, but the reality is that many new entrants don’t want to and can’t compete with the likes of BlackRock, Vanguard and State Street who own the market cap space,' she told Citywire Selector.

These big players currently own around 71% of assets globally, while dominating 82% in the US. Fuhr said this means smaller companies will have to position as to not compete head to head with bigger groups.

'The very first ETF in the US – the S&P 500 ETF - is still one of the largest ETFs and still trades a lot every day and investors are still using these products for market cap exposure.

'Many companies are coming out with smart beta ETFs, many are also launching slightly different products with a more active stance. There are a lot of positive things going on in the space. We are seeing a lot of growth in terms of new providers and new indices.'

MiFID impact

With her attention focused on Europe, Fuhr said forthcoming MiFID II regulation, which is set to take effect from January 2018, should be good for ETFs.

'Many investors are looking forward to the next year in terms of what new products could be launched. Today in Europe, ETF trades don’t have to be recorded on exchange and MiFID II would require trades to be reported, it’s supposed to be a consolidated tape which would also benefit ETFs.

‘On the flip side in the US, many think President Trump wanting to limit and change regulations will allow for non-transparent active ETFs. This would allow many traditional active managers who don’t want to provide daily transparency, to launch nontransparent active ETFs.’

Green bond ETFs

In recent months both UBS and Lyxor launched green bond ETFs, which is a trend which Fuhr said is a way for investors to access niche themes in a passive capacity.

'People are looking at infrastructure and they are also looking at ESG. These things are quite similar in that people want to invest in helping the economy and the wider world.

'The way that these indices have been created in the past - not green bonds specifically, but the ESG element - has been negative screening, where you historically found that sin stocks would do better.'

Fuhr said the methodology for creating indices is evolving and therefore the industry is seeing more and more investments into this space.

‘This is especially from millennials who tend to have their focus in that area. Clearly, Trump is meant to be spending money on infrastructure in the US, so I think there will also be opportunities for additional investments in that area.'

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