Caroline Cakebread
I really hate end-of-year lists. So why am I subjecting you to this post? Because so much has happened in the exchange-traded fund (ETF) space in 2013 that could fundamentally change the game for the industry in 2014 and beyond. I wrote about a lot of these developments on the site in 2013, but there are five that I think will gain traction in the coming months and years. So at the risk of contributing to end-of-year-list fatigue…
- Access — In 2013, a plan sponsor told me that, soon after trustees okayed an allocation to ETFs for the plan, he had to bend over backwards to find a place to buy them (it wasn’t as if he could just open an online brokerage account, retail-style). The point is, using ETFs was hard—and it shouldn’t be that way. In the U.K., ETF provider BlackRock signed up four custodians in 2013 to make the products more readily available for pension funds in that country. Plan sponsors can simply buy them through a custodian—no muss, no fuss. Will we see the same thing coming to Canada soon?
- Move over mutual funds — The rise of active ETFs will ultimately help the industry take some market share away from the massive mutual fund industry. In the U.S., the call for regulators to relax requirements around transparency might help active ETF managers hold their cards a little closer to their chest when it comes to reporting. And that could give them a definite leg-up with investors in the future.
- Getting smart — Smart beta ETFs had a big year in 2013, and, according to some experts, it’s going to be even bigger in 2014. More than half (53%) of institutional investors plan to increase their use of smart beta ETFs in the next three years (higher than any other ETF category, including market cap-weighted products at 48%). Not surprising, given that, apparently, even a monkey can beat a cap-weighted index.
- China — Despite a lot of mixed messages about China, its economy is set to expand by 7.8% in 2014, according to the folks at Goldman Sachs. With ETFs now tracking mainland companies in China, they are one of the best and easiest ways to get a piece of the growth as the country continues to relax its restrictions on foreign investment.
- Teamwork — Last year, the Arizona State Retirement System teamed up with iShares to launch three new factor-based equity ETFs. The products were designed with the investment staff at the pension fund to meet their needs and, presumably, those of other institutions. Those kinds of partnerships put an institutional stamp on what is often viewed as a retail product—and it ensures that the industry continues to develop products that meet the unique needs of big sophisticated investors (including pension funds). Here’s to more such partnerships in the coming year(s).