Expert Investors: Gilles Prince of Edmond de Rothschild

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Expert investors is a series

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ETF Stream

 where on a fortnightly basis we interview the key individuals from across the fund selection and research space about the ETF ecosystem.

Fund selection plays a crucial role in portfolio construction. Once the asset allocation decision has been made, these individuals need to decide how they want to be exposed, be it through a mutual fund, investment trust or ETF.

Over the years, ETFs have become an increasingly important part of any investor’s toolkit. This series will show how the key players across the fund selection space use ETFs in their portfolios while asking what more can be done by the ETF providers to help with this increasing adoption.

Next in the hot seat is Gilles Price, chief investment officer at Edmond de Rothschild (Suisse). Prince joined the firm in August 2009 and is in charge of the CIO Office for private banking. He is also a member of EdR Global Investment Committee.

How much of your portfolio is made up of ETFs?

It typically varies depending on the type of portfolio and risk profile, though it generally represents a small proportion of our portfolios as we prefer using active managers.

Nevertheless, ETFs are important vehicles in our toolkit to access liquid asset classes cheaply and immediately. I believe they are well suited to adjust our market exposure and build on our core positions.

When did you start investing in ETFs?

We started quite early on and frankly cannot remember when! The immediate access to a diversified index portfolio, the cost advantage and the liquidity were seen as the main trading advantages, and it remains the case.

What asset classes to you tend to invest in through ETFs?

We remain quite conservative on the asset classes and underlying indices we are using. We typically prefer liquid and well diversified indices and physical replication.

The main equity indices represent our largest exposure, but we may also opt for more specific or sector ETFs as necessary.

ETFs are usually preferred on the most liquid and efficient asset classes where active management struggles to deliver consistent alpha. Less efficient and less liquid asset classes are accessed through active funds.

Which areas would you avoid?

We avoid rule-based sophisticated ETFs where returns are not only dependent on the underlying index, but also on market technicalities.

Inverse and leveraged products are therefore not part of our toolkit and we are very cautious with products using derivatives instruments.

I believe that a lot of attention should be paid on the underlying index as we want to avoid concentrations and liquidity traps. Also, we focus on ETFs where costs are truly lower than a mutual fund equivalent.

What is your methodology for selecting ETFs?

As we want robust products from solid providers, we pay a lot of attention to the ETF platform and on the product characteristics.

The due diligence on ETF providers is pursued by a dedicated fund selection team, while the product is selected by our portfolio managers and advisors. A variety of factors are taken into account, the keywords being transparency, liquidity, costs, index quality, education or the replication methodology, to name a few.

Do you have an ETF provider preference?

No, we do not, but once ETF providers have successfully passed through our due diligence process, we tend to select the ones with the offer that match our needs of the moment and the ones with the best service in terms of education and market information.

Are there any areas ETF providers could improve?

Education on the underlying indices is certainly an area of continuous improvement, as providers would want to make sure that investors truly understand what is in the product.

To read the previous edition of Expert Investors with Jordan Sriharan of Canaccord Genuity Wealth Management (CGWM), click here.

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