Industry Updates

Are ETF issuers becoming diversity lobbyists?

David Tuckwell

Three interesting stories and ideas that have defined this week in ETFs

1) ETF issuers become diversity lobbyists

One of the early criticisms of ETF issuers was that they took no active role in overseeing the companies they invested in. ETF issuers can have huge stakes in companies, due to the size of their funds. (And with more money flowing into ETFs, their stakes are likely to swell.) Many have worried that if ETFs are truly passive then issuers will take no role in managing businesses - regardless of how big a slice of them they come to own.

But issuers are defying these fears and militating for change. As they do, ETF owners and investors are getting insight into what issuers priorities are. One priority for BlackRock, the largest issuer in the world, is gender and racial diversity. BlackRock is also practicing what it preaches, publicising diversity data on its own workforce.

But BlackRock isn't the only issuers doing this. The other two major US issuers, State Street and Vanguard are also pushing for greater diversity. State Street has even listed ETFs that track an index of companies weighted by how diverse their boardrooms are.

2) Are investors ready for the next stage in smart beta?

ETF issuers are divided on whether investors are ready for dynamic multifactor ETFs, thought by some to be the next stage in smart beta. But wait... what are they?

Smart beta ETFs track factors, like profitability or dividends, and count on investors to buy and sell them when the timing is right. But dynamic multifactor ETFs claim to do one better. They claim to do the timing on investors behalf, and build into their indexes when each factor is over or undervalued.

Some issuers, like Oppenheimer and PIMCO, are racing into dynamic multifactor ETFs. Others, like BlackRock, believe it is "too soon" and intends to double its smart beta sales force in 2018 while leaving dynamic multifactor alone.

3) Are insurance giants the next big issuers?

Insurance companies have caution in their DNA, but they are falling for the ETF craze. Some of the biggest names in American insurance are starting to list ETFs, hoping that their brand names and reputation for reliability will give them an edge in the increasingly competitive ETF market. And it is, for all appearances, working. Insurers now hold over $25 billion in ETF assets, up from $2bn five years ago. Insurers that have ETFs include: New York Life Insurance, United Services Automobile Association and TIAA. Prudential Financial, the largest US insurer, is also said to be exploring ways to enter.

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