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Performance vs transparency in ETFs

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  • Performance vs transparency in ETFs

EUROPE - Performance and transparency are battling it out with each other as exchange-traded funds (ETFs) push for more European institutional money, experts debated today.

Speaking at the World Cup of Investment Management conference in Paris today, panellists of a roundtable discussion on ETFs clashed over the importance of performance versus transparency in their own offerings.

Thorsten Michalik, managing director db x-trackers of the ETF team at Deutsche Bank told delegates: "There are so many products on the market, it has confused consumers to the extent that there are now even consultants to help consumers choose."

According to Michalik, the most successful approach to providing ETFs is making the funds as simple and as transparent as possible: "We do very unsexy things, we don't do funky stuff, but rather keep it simple." Michalik claims DB is the most succesful ETF provider in Europe.

In contrast, however, Daniel Freedman, managing director of the recently-launched Spa ETF - a subsidiary of UK asset manager London & Capital - argued performance is the most important issue for institutional investors.

"Institutional investors are looking for ways to improve their returns," he said, adding "it is all about performance." According to Freedman, only outperformance adds value to a portfolio.

Freedman argued predominantly institutional investors use ETFs as an investment tool and Alain Dubois, chairman of the board at Lyxor Asset Management, also concluded the majority of ETFs in Europe are still being purchased by institutions.

ETFs are securities which track an index, a commodity or a basket of assets like an index fund, but trade like a stock on a known exchange.

Have Your Say: Marco Ciatto, managing director of ETF Consulting Srl (an independent consultancy specialising in ETFs), says:

I was at the conference, but in another panel moderated by Thorsten. And I would like to say that one thing does not exclude the other. You can have both transparency and performance with ETFs.

The second (or third) generation of ETFs - like SPA ETF, based on MarketGrader's indices, or PowerShares Dynamic ETFs, based on Intellidex and QSG indices - are fully transparent, because each day you have the basket composition with all weights and holdings.

Indices are rebalanced on quarterly or semi-annually basis upon a fix and specific methodology and they do not change from time-to-time because of subjective decisions.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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