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Smart beta roundtable: where next for exchange traded funds?

by Emma Dunkley on Jul 06, 2012 at 11:53

The alternative is to use an active manager, but then, of course, you are increasing the cost of the portfolio, which is often the primary reason for putting together a proposition of this nature.

Parker: Has anyone ever bought a fixed income ETF?

Harris: Yes. I wanted exposure to the US high-yield market. It was quick. It was well diversified. It was physical, rather than a swap. And it suited my purposes at the time.

Dunkley: With regards to the ETFs you choose, is there still a debate as to whether investors go for physical or synthetic ETFs? Or has the debate moved on?

Armstrong: There’s a lot of debate about physical exchange traded commodities (ETCs). JP Morgan, for example, has filed to launch a physical copper ETF – that makes no sense. First because of the storage of copper and what this costs – one cannot image what that would be.

Clearly, providers are looking to overcome the disadvantages of contango and now there is a development for ETCs tracking oil, to mitigate the costs of contango. So ETFs and ETCs are getting smarter.

Isabelle Bourcier, head of business development, Ossiam : One thing that has struck me is the use of the label ETF across a range of products that aren’t actually funds operating under the Ucits IV directive.

There is a lot of talk about transparency and understanding risk, but ETFs and ETCs are two different products in terms of risk and in terms of regulation.

For example, there’s no way you can have an ETF just on oil, because it’s not diversified. This is something that’s part of a wider debate: how all these products are just put into the same bucket.

There needs to be a clear distinction between products, because otherwise we will end up with the potential situation where, if something goes wrong with an ETC for example, the whole ETF market will be seen as the bad guys.

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