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ESG: The metrics jigsaw


Exchange-traded funds set for UK debut

Following the success of exchange-traded funds in the US, these indexed investment products are set to hit the UK market later this year.
Barclays Global Investors will launch its new iShares – the UK’s first exchange-traded funds – later this year when it has received approval from regulators. John Demaine, managing director at BGI and director of iShares plc, says all of the iShares in the pipeline will be based on a recognisable index. But before approval is granted, details are scarce. “Once we have approval we would intend over the next 12 months to launch a range of different products, so it is not just going to be one,” he says.
Exchange-traded funds have become popular investment instruments in the US since they were first introduced 10 years ago. BGI says its iShares will trade like any other shares and will be available to professional and private investors through any stockbroker.
Like a fund, they will provide instant exposure to many companies by investing in a market or sector. iShares, BGI says, will combine the flexibility of shares with the diversification of a fund.
Often used as an alternative to index-tracking investment funds, supporters say exchange-traded funds mirror the index more accurately than an index fund. While an index fund tries to mimic an index rather than actually being invested in that index, exchange-traded funds are direct, real-time investments in an actual index, which can be bought and sold in the same way as an individual stock.
In theory, the cost of exchange-traded funds is lower than investment in an index fund, because there is no management as such. But because there are brokers’ fees to pay on top of management expenses, the advantage is debatable.
Demaine admits the new products could take some time to catch on. “As with anything as new as this, we’re not expecting overnight success... it will take a while for people to understand.” But they are a very attractive investment tool, he says.
In the US, BGI is planning to launch 36 more exchange-traded funds in addition to the 18 it already has, Demaine says. And further launches of exchange-traded funds can be expected. “We’re committed to developing these products in Europe and the rest of the world.” Rachel Fixsen

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