David Abner is an executive vice president and head of WisdomTree Europe. He’s been involved with ETFs since shortly after their inception, and is the author of “The ETF Handbook: How To Value And Trade Exchange Traded Funds” and the “Visual Guide To ETFs.” Known for his expertise in trading ETFs, he has devoted much of his career to educating investors on how they can implement ETFs in their portfolios. Here, he speaks with ETF.com Managing Director Dave Nadig about the career path that led to the ETF.com Lifetime Achievement Award for 2017.
Tell us a bit about how you started in the ETF space.
It was in the mid-1990s when I first discovered ETFs. I was running the closed-end fund trading business at Bear Stearns, and as they were mostly unknown, ETFs came under my purview as listed basket products.
There were a variety of different products at that time with different structures, such as the SPDR S&P 500 ETF Trust (SPY), a unit investment trust and WEBS—World Equity Benchmark Series—which were later acquired and became the iShares country funds. It was a very small segment of products, and I was immediately intrigued. At that point in time, I was mostly working out how the baskets worked as well as performing arbitrage on them, in a similar way to how we traded closed-end funds.
It was probably not until 2000 that I really thought the products were innovative in structure and had real growth potential. Still at Bear Stearns, I convinced the firm to let me start building a dedicated ETF trading business, making markets for institutional customers (mostly hedge funds) and taking advantage of arbitrage between the baskets and the funds. It was a very valuable business at that time, because not many people understood the products, and the spreads were wide, but it was more challenging to trade the baskets. Many of the market participants we consider big players in ETFs were in their infancy at that time.
I identified a void and built a large trading business at Bear Stearns, and then in 2006, I was given the opportunity to build a more global business at BNP Paribas. I thought at the time that trading the ETFs that are listed around the world presented opportunities for arbitrage that were starting to get tighter in the U.S. because of increased usage by investors.
In 2008, I got to know Wisdom-Tree, which was still a small issuer, only two years old at the time. I really thought they were doing something special. I then made the move out of trading onto the issuer side—I knew this would be a personal challenge and I really believed in the growth opportunity in ETFs within the asset management industry. It was all new to me then, and now I’ve been at WisdomTree for 10 years, and it’s been a fantastic experience.
What’s surprised you most about your career so far?
I never anticipated becoming a trader or becoming a leading educator on the way that ETFs are utilized. After graduate school, my intention at Bear Stearns was to concentrate on technology and operational efficiency. This was the focus area of my degrees, after all. I had been there only about a year, working on automating their back office, when I met a group of traders that needed help with an automation project. They taught me how to trade so that I could help to automate their systems, and I just ran with it from there.
I can’t believe it’s now been 20 years that I’ve been working with ETFs, and yet there’s still so much education we have ahead of us. I still use a descriptive expression, “they’re like mutual funds except they trade on a stock exchange,” which resonates with most people, because they’ve heard of the older-style mutual funds. It grounds my belief that we’re still in the early innings in the growth of ETFs. Even at approximately $5 trillion in assets, they have a tremendous runway for growth ahead of them, fueled by new technologies and changes in investing behavior.
What do you think you’ve contributed over that time?
I really feel that my influence coming from the trading side to the issuer side, even in 2008, had a large impact on driving spreads tighter across the whole industry. I helped so many of the largest product users understand the pricing mechanism and what they should expect from the trading community. Moreover, tighter spreads and a better understanding of liquidity really helped the industry as a whole to grow.
Not long after I joined WisdomTree, I realized that investors—mostly institutions and advisors—were starting to use the products more, but really didn’t understand how the products were priced, why spreads had a particular width and where ETF liquidity came from. It was a lightbulb moment when I decided I could write all this down in a book and it would become an important investing tool.
I had one of the easiest routes to publishing a book, because I brought the idea for “The ETF Handbook” to Wiley, and they immediately wanted to publish it. That book, first published in 2010, has now been used by thousands of industry participants, on all sides, to really understand how the products work. I get amazing feedback from readers all the time, and I have trouble sometimes believing I’m already working on the third edition for its upcoming tenth anniversary in 2019.
In 2012, I licensed the “ETF Implied Liquidity” function to Bloomberg and they then made the function available on their terminals. It’s fantastic that the ETF Implied Liquidity function that I developed is now made available by all major data providers and used by ETF investors every day to plan their investments.
What do you think are the biggest challenges and opportunities for the ETF industry in the next 10 years?
Technology is completely uprooting every industry, and financial products are definitely being impacted. This is going to be a major challenge, and also presents an incredible opportunity. The creation of new, innovative products, and advances in blockchain technologies, could completely change the industry as we know it today.
Methods of distribution and the way investors put money to work in the market are also undergoing dramatic changes. Continually keeping up with these technological advances to be providing innovative, transparent and easy-to-use products for investors is always a challenge, but even more so in a world where the ground’s constantly shifting under our feet.
I really feel we’re in the early stages of the changes that are coming. New technologies being applied to our industry are just starting to gain scale and have an impact. It’s very exciting.
What are you looking forward to accomplishing next?
I really feel that the next decade is going to be led by technologically heavy innovation in the creation and delivery of financial products, and I’m going to continue to try to be on the leading edge of these advances. I’ve got a lot of ideas about educating new and existing consumers of financial products and helping all people to manage their financial lives in an easier and more seamless fashion with everything else they do. I think the ETF industry is really focused on helping investors have a better investing experience, and that’s something I have passionately believed in for many years.