Deborah Fuhr, exchange traded fund (ETF) guru and global head of ETF research at BlackRock believes that the explosive growth of the industry has put it at a crossroads as new products come to market.
While her comments were largely aimed at Europe’s ETF industry, they certainly have relevance in other markets, too.
Fuhr warns that the industry in Europe is at risk of moving away from the traditional virtues of ETFs – namely, transparency and ease of understanding. She cited in particular the popularity of hedge fund strategies. On the one hand, ETFs that utilize complex strategies give average investors access to areas normally reserved for the uber-wealthy. On the other hand, however, they may be challenging for those investors to fully understand what they’re getting into. [Common Misunderstandings About ETFs.]
The European ETF industry is booming, and assets are forecast to grow about 30% this year. Chris Flood for The Financial Times reports that this month marks the 10th anniversary of the first ETF launch in Europe, the iShares DJ Stoxx 50, which was listed on the Deutsche Börse.
European investors could increasingly see things like structured products and active funds launched in ETF form, but Fuhr wants to ensure that these products maintain transparency, a hallmark of the ETF industry. In the United States, transparency is a firm requirement that needs to be met before SEC approval is granted.
Retail investors only account for 10%-15% of the European market, compared to 40%-50% in the United States. The growth potential is high and there is enough market share for ETFs to flourish, however, it is up to the industry at large to ensure the virtue of ETFs is kept intact. [Variety Is the Spice of the ETF Industry.]
For more stories about ETFs, visit our ETF 101 category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.