To set ourselves up for what promises to be another exciting year ahead for the ETF sector, we asked some of the foremost commentators in the space to peer into their crystal balls and predict what they saw as being both the promises and the challenges ahead. In the first part of our preview, we feature comments from Isabelle Bourcier, head of ETF and indexed funds at BNP Paribas, Howie LI CEO Canvas at ETF Securities, Adam Laird, head of ETF strategy, Northern Europe at Lyxor Asset Management and Oliver Smith, portfolio manager at IG portfolios.
Isabelle Bourcier, head of ETF and indexed funds at BNP Paribas
The main opportunity in continental Europe (where our core markets are) under MIFID is to increase our reach within the retail market. A lot of private banks on the discretionary fund and advisory sides are increasingly integrating ETF. We see opportunities there in different fields including thematics, smart beta and ESG where we have a distinctive offering. The ESG thematic is very important not only for private banks but also for tier 2 and tier 3 institutional investors, of whom more and more are going passive. For the ETF industry in general the challenge is on the distribution side rather than the manufacturing side. Distribution capabilities are important for success as the market is growing and more asset managers are developing their ETF capabilities.
Howie LI CEO Canvas at ETF Securities
In the world of ETFs, the good thing to watch out for in 2018 is wider usage of the ETF structure to accommodate more innovative investment expertise. I think alternatively weighted (or smart beta) fixed income will be highlighted in a big way with more investors requiring exposures that adequately consider and position for risk. The worst thing that can happen to ETFs in 2018 is the continued misconception that ETFs are risky vehicles. ETFs are an investment wrapper and I hope that investors become more aware that some of the recent criticisms of ETFs are not ETF specific. What investors need to know is what market capitalisation indexes do for them (which represent the bulk of current AUM in ETFs) and, if it's an unwanted risk, how they can look at other non-market cap ETFs to help provide more precision and risk management to their investing.
Adam Laird, head of ETF strategy, Northern Europe at Lyxor Asset Management
The good things for 2018: This will be the year when the lights are switched on and pointed at ETF trading. From January, 100% of Europe's ETF trades will be reported - whereas we estimate currently only a quarter of trades are visible. This visibility on ETFs' liquidity should provide a lot of comfort to risk managers and investors just dipping their toes in the ETF market. On the negatives, we still have ow interest rates. 2018 is ten years after the global financial crisis, and rates are still at rock bottom levels, which makes life very tricky for income seekers. ETFs are trying to fill the income gap, but we're just scratching the surface. I'm not hoping for rate hikes - but let's continue 2018 along the route to 'normal'.
Oliver Smith, portfolio manager at IG portfolios
For positives, ETF fees for core investments are continuing to fall, to the benefit of all investors. Will 2018 be the year we get a zero fee ETF? On the downside, savers will continue to be hurt by below inflation returns in their bank deposits and capital gains tax may come under more scrutiny. For a squeezed minority government, the top rate of 20% looks increasingly out of line in comparison with income tax (additional rate 45%).