Fannie Wurtz was global head of ETF, indexing and smart beta sales at Amundi before being appointed managing director in April 2016. Prior to joining Amundi in November 2011, she was responsible for ETF institutional sales and Amundi ETF business development at CA Cheuvreux from 2008. Fannie has extensive experience in institutional sales which she gained as sales associate director at Fidelity Investments between 2003-08, where she was in charge of relationships with institutional clients and distributors, and at Schroders Investment Management where she managed institutional client relationships. Fannie started her career at State Street Bank and KPMG Audit. Fannie holds a master’s degree from ESC Bordeaux.
ETFstream: What’s your take on how the European ETF market has evolved of late?
Fannie Wurtz: Over the past 10 years, the European market has enjoyed very strong growth in terms of product offering and assets under management. In 2007, we counted a bit more than 415 ETFs available in Europe, and in 2017 we reached more than 1,550. In terms of AUM, the market was multiplied by more than 6.5 times between 2007 and 2017, gathering today more than €578bn. Perspectives for the passive industry in general and ETFs in particular are still very positive. ETF adoption across Europe is set to accelerate, spurred by favourable regulatory changes, innovation, and an increasing acknowledgement of the long-term benefits of low-cost investment solutions. ETFs are making up an increasing proportion of portfolio holdings across equity and fixed income. Should its current growth rate persist, the sector could hit the €1tn mark by 2020, supported by new clients, among which distributors, portfolio managers and sustained demand from long-standing ETF users.
ETFstream: What do you think are the big trends are in the next 12 months in the world of ETFs in Europe?
FW: In terms of allocation trends, three key themes have been driving ETF inflows since the start of the year: European equities, emerging markets and fixed income. European equities have won the support of investors for several months, and particularly equities from within the Eurozone (this segment gathered more than €6bn during the first eight months of the year). For their part, flows towards emerging markets continued to accelerate during the first eight months of 2017, to almost €6.4bn, mainly towards large indices to capture the strongest potential growth based on internal demand within these areas. Fixed-income ETFs have not been left out. One of the most remarkable trends is the comeback of emerging markets govies in investors’ allocation strategies. In addition to this, given the normalisation of monetary policy by the Federal Reserve, investors are seeking after-hedging strategies to reduce the sensitivity of the portfolio to interest rates fluctuations. In this context, floating-rate notes (FRN) ETFs collected around €3.7bn since the beginning of the year. We believe the favourable trend for European equities, fixed-income ETFs and smart beta ETFs (over €6.6bn year-to-date) is here to stay, as investors are strongly demanding such exposures in their allocation strategies to find yield and diversification.
ETFstream: You’ve brought out a number of new products in the fixed income space – what’s the logic behind these new issues?
FW: The fixed-income market has become a dynamic area of innovation, as investors are facing big challenges: low-yield environment and a potential rise of interest rates in the US in the short-run. To help investors, we have recently launched a series of bond ETFs to offer more granularity in the fixed-income allocation and ‘all-in-one strategies’ to take into consideration ratings, duration, maturity, etc. In order to support investors in their search for yield, we launched a range of BBB ETFs. By selecting bonds with a BBB credit rating, investors can tap into the highest possible yields while being exposed to the investment grade universe. In addition, a shorter duration can help to mitigate the impact of any hikes in the cost of borrowing, reducing sensitivity to interest rate moves. By selecting an ETF which only uses instruments with a one- to five-year maturity, duration risk is reduced. The second key factor is the potential for an interest rate rise. Indeed, Amundi ETF launched two innovative ETFs on FRNs, respectively EUR and USD denominated, and replicating the Markit iBoxx indices. These indices focus on bond quality and liquidity to provide investors with asset allocation strategies that are adapted to new market conditions.
ETFstream: The fixed income spectrum is already fairly busy – how are you going to focus on innovation moving forward?
FW: The rapid product development within the European ETF market has enabled investors to easily invest in bonds thanks to the availability of a wide range of highly cost-effective, easy-to-trade ETFs. Historically, we have observed two phases of product development in the fixed-income field: the first one consisted in the development of vanilla fixed-income ETFs. The second and current one is the development of specific solutions to face the current market environment: investors are now looking for ETFs enabling them to implement genuine bond strategies in a single transaction, be it in terms of rating, duration, yield, etc. Amundi ETF is fully committed to support investors through product innovation.
ETFstream: You’ve also been developing a range of currency-hedged products?
FW: Yes, there is real demand for currency-hedged products, typically from advisers that cannot perform hedging themselves, but we also saw some institutions buying those hedge products because it is actually one-size-fits-all, an off-the-shelf product. Our range includes both equity and fixed-income currency-hedged ETFs. In particular, we were the first in Europe to propose daily currency hedging, which allows investors to reduce the impact of currency volatility.
ETFstream: Do you think investors really understand what they are buying when they buy smart beta?
FW: As demonstrated by the results of the EDHEC Risk European ETF Survey published in May this year, there is a gap between required information for assessing smart beta products, such as liquidity, capacity, index construction methodology and transaction costs, and the ease of access to this information. Constructing replicable smart beta indices which can provide the right level of liquidity, quality, and diversification is one of the main challenges index providers need to address. We are committed to doing a lot of education overall and we take great care on selecting the right partners, which are able to provide transparent methodology and a good level on information. At Amundi we manage €12bn in smart beta, both active and passive, covering the whole spectrum.
ETFstream: What about multifactor ETFs – are they proving popular? Do investors really understand what goes on inside the ‘box’?
FW: The challenge for multifactor ETFs is huge indeed as clients need to understand how the underlying factors are built, and how they are combined. As a leading ETF provider, we take great care of being transparent in the way the index we use are built and provide investors with relevant information they need in their selection process and allocation strategy.
ETFstream: I completely agree, but my worry is that investors don’t understand its cyclicality of single factors.
FW: Some factors work well in some market conditions, some other factors work well in other market conditions. It is all about education, I agree with you. Investors have now access to a large spectrum of smart-beta solutions which can answer to a variety of needs. This requires a good level of information to make sure to find the right answer to specific constraints and objectives. This is why educational support to investors is crucial when considering smart beta strategies: providers should be able to guide their clients, by providing them with the right education about the solutions they suggest. The capacity of an asset manager to offer a large spectrum of solutions is also crucial, to avoid any bias and make sure the solution proposed is the best to address that specific need. What is crucial to understand is that smart beta is not about one-size-fits-all: a good knowledge of the client, the capability of managing risks and that of providing customised solutions are key to provide efficient answers to clients.
ETFstream: So, let’s talk a bit, about where the growth in ETFs in Europe is going to come from. Isn’t the institutional market fairly saturated with the greatest growth potential in retail where you work with distributors to sell product?
FW: The development of ETF-based solutions to serve distribution networks is for sure one of the main developments in the coming years in Europe. At Amundi, we are working with distributors to package ETF-based solutions for end clients. In addition to product development, we have the capability to offer advisory services to distributors, to help them answer the question on how you combine those ETFs and how you find solutions that are appropriate to their final clients. There’s a huge amount of dialogue going on with distributors about how we do it.
ETFstream: So do you think that there is still more growth in institutional market?
FW: Yes. The ETF is a tremendous product that anybody can use to access the market. They are efficiently priced and robust. If we look at the results of the latest European ETF EDHEC Risk Survey on institutional clients, we see that one of the main findings is that investors are still looking to increase the quota of their ETF investment in the coming years. So the European ETF market is definitely still a developing one both concerning institutional and retail client segments.
ETFstream: Are you seeing demand from robo-advisers for your products?
FW: Yes. Robo-advisers are typically a good channel of distribution for ETFs because these products are a perfect fit: easy to understand, easy to trade, low cost. Nevertheless, they represent one channel amongst many, including the normal distributors, the online banks etc. We are definitely looking forward to working with all distributors channel and welcome the robo-adviser into that.
ETFstream: Turning to the ETF issuers – are there too many mid-level players in the European market?
FW: The European ETF market is very dynamic and benefits from a steady growth pace and increasing demand. Strong drivers, such as new regulations, new distribution channels, challenging macro-economic environment, retail-isation, etc. also support the expansion of the ETF market in Europe, thus attracting new entrants that are willing to participate to this trend. Competition is obviously beneficial for investors in terms of variety of product offering and cost pressure. That being said, we strongly believe that only very few providers have the ability and the credibility to last in this market. Being part of Amundi, the European asset manager leader, is definitely a key asset. We are in a position to offer, in addition to a comprehensive product offering, a full set of services to accompany both institutional and distributors who are increasingly looking for solid and long-lasting partners to meet their various challenges.
ETFstream: You are up against some big American beasts and they are pushing the price down all the time. How much lower can it go?
FW: Offering cost-efficient ETFs is one of our core principles: our range, indeed, is less expensive that the market average. Once again, to do this we leverage Amundi’s bargaining power, which allows us to position our range within the most cost competitive on the market. At the same time, we’re convinced that cost should not be the only criteria to look at: investors are also looking for a partner that should be able to offer a comprehensive product range. I talk about a broad ETF range, but also in more extensive terms about indexing products, smart beta solutions etc. Being able to offer customized solutions to institutional clients, including specific criteria such as ESG filters or smart beta, is more and more crucial.
ETFstream: If you had to pick one product area over the next two or three years where you think you’re going to see an awful lot more activity in? What’s the one area you think would be really interesting to watch over the next few years?
FW: Definitely smart beta and more precisely factor investing where we are currently working on innovative solutions to help investors in their search for complementary sources of performance. Fixed income, as I said earlier, is definitely a space for innovation for our ETF, indexing and smart beta business line, be it in terms of passive solutions or stretched out to smart beta. There are still new segments to be explored to meet investors’ needs. Finally, the development of ETF-based solutions for distribution networks will be an area of strong activity.
ETFstream: And at the moment in ETFs what is your total Assets Under management and where do you think it will be in five-years’ time?
FW: The ETF, indexing and smart beta business line of Amundi has an overall AUM of €74bn, of which €33 billion in on ETF platform. We expect the ETF market to continue to grow by 20-25% annually.
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Hosted by Inside ETFs on 1st October 2018