The exchange traded fund industry has the capacity to grow but there is a pressing need for more fund education and product development, according to Vanguard Chief Investment Officer Gus Sauter.
From 2000 through 2010, assets in ETFs have grown about 30% per year, Sauter said in a recent speech at the Index Universe “Inside ETFs” conference.
Mutual funds trailed ETFs, with about 5% growth annually, over the same time period. ETFs now hold about $1.5 trillion in investor assets. [ETFs in Focus at AAII Confab]
According to Sauter, the ETF industry has provided investors access to an investment tool that is low cost, diversified and flexible, while still remaining somewhat simple. [ETFs in Focus at Schwab Conference]
There have been several misconceptions about the ETF industry and confusion has been a result over the recent years. From the “flash crash” in May 2010 to being the root of overall market volatility, ETFs have taken the blame due to general ignorance about the funds. [ETFs Gaining Momentum at the Morningstar Confab]
Sauter urged more financial professionals to take the time to educate clients and provide a voice of reason for the industry at large, according to a report on Vanguard. Sauter compared the volatility of the U.S. stock market to that of the German stock market. [Vanguard Bullish on ETFs]
“ETFs are much more dominant in the U.S. market than in Germany, but market volatility in each has been the same–exactly the same,” Mr. Sauter said.
Mr. Sauter’s concept of “advisor’s alpha” was also discussed at the conference. The idea can help advisors reconsider their traditional value proposition. The focus of the concept is for advisors to diverge from picking investments and strategies and to concentrate more on a new value proposition based on alternative skills and expertise. Market outperformance is replaced by client relationship-oriented services such as wealth management and financial-planning strategies.
“The advice perspective and planning that today’s advisor provides is far more valuable than a buy, sell, or hold call,” Sauter said.
Vanguard is the third-largest provider of ETFs, measured by assets under management.
Tisha Guerrero contributed to this article.
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.