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Taste for ‘smarter’ funds kicks passives into shape

by Emma Dunkley on Dec 28, 2012 at 07:00

‘Investors need to be smart about choosing an ETF. There is a lot of choice, so you need to look for a strong parent company that has a track record of building and growing its franchise. I would be less interested in an investment in a subscale ETF.’

Nonetheless, despite the importance of selecting the types of products that are able to gain traction, investors are increasingly searching for more granular exposure to asset classes or smarter ways to access markets.

The industry will continue to evolve, but with new product development comes the need for education. With the RDR around the corner, more retail investors will start using ETFs, which will also spur on trading volumes and liquidity. However, the danger is that some of these products carry new risks, of which investors must be aware.

The future, then, is one that will likely see fewer product providers who are able to meet demand and launch some of these more niche products, and continue to back them. By combining assets and bringing more scale to ETFs, it will bring more trading volume and, ultimately, enhanced liquidity for end-investors. The prominent positions of the likes of Vanguard and BlackRock will still be challenged, however, by other providers and the ongoing fee competition, which should continue to lower costs for investors.

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