4 Things I Learnt From Inside ETFs

Sometimes you can end up being complacent in this industry. Complacent that you know it all, that you’ve read all the right information, and there’s not a single new thing you can learn about ETFs. But having 1,900 people gathered at the ETF.com annual conference in Florida would jerk anybody out of their complacent reverie. 

My colleague Dave Nadig wrote about what he learnt from the annual conference last week from a U.S. perspective, which you can read here. From a European point of view, here are what I consider the most important take-aways:

1) 2015 Is All About Fixed Income

The first point translates across the pond. Over the next 12 months, advisers should care about how they invest the fixed income part of their portfolio, and where they want to be regarding credit and duration.

It is a tricky subject, as some experts would advise to hold longer-dated bonds as part of a diversified portfolio and gain from the rally at the longer end of the curve. Others would advise ditching long dated for short dated bonds to protect against any movement in interest rates, which could occur alongside monetary policy twitches from the central banks.

Inside ETFs saw some interesting and insightful debates on the issue, including U.S.-based DoubleLine’s Jeff Gundlach, who is bullish on bonds this year and believes U.S. Treasury yields will continue to fall.

Other top tips for investors were to avoid having a static asset allocation, not avoid duration and be aware that the market is pricing in a global deflationary environment.

2) Robo Advisers – To Infinity And Beyond?

Admittedly there are certain ETF-related concepts that get lost in translation this side of the pond, like “ETF strategist” and “robo adviser”. We might know what they are but they rarely get used in conversation as the European ETF market is still arguably gathering pace.

However, one thing is clear – where the Americans go, we tend to follow. This is also true with so-called robo advisers – online fund managers that assess risk and build model portfolios of ETFs. The only company in the UK that could even vaguely fall in this camp is Nutmeg, and this new discretionary fund manager tends to slip in the odd investment trust if the asset class requires it and is more active with its asset allocation. Not really the same thing.

But at the annual conference last week, it was clear robo advisers are gathering pace and could even threaten the traditional financial planners' business. Renowned U.S. adviser Ric Edelman claimed that robo advisers like Schwab, Betterment and Wealthfront will put 50 percent of U.S.-based financial planners out of business with their no fuss, low cost, online approach.

Could Nutmeg, or new variations of that model, be about to push UK financial planners down the same path?

3) Index Innovation Has A Long Way To Go

We’ve had the 3D printing index, the index that focuses on solar panels and the index of small German companies. Surely we’ve exhausted all possibilities?

Clearly not. The panellists I interviewed in Florida were certain that smart beta, for example, could extend into other asset classes beside equities. If there are risk factors like value, growth and momentum which drive the equity market, then why not capture the factors that drive the fixed income or commodity market?

Certainly these ETF participants seem more confident and upbeat on this subject then a recent conference I attended, where smart beta in other asset classes seemed like a distant dream.

The ETF.com conference also emphasised the importance of fully understanding smart beta and how to discuss it with your clients. The panellists shared tips on this discussion here.

4) There Is No Stopping ETFs

It might sound obvious, and a little smug, to say I’m in the right job. But it feels good to report on the healthy growth of an industry of over $2 trillion which is striving to innovate and lower costs for investors.

Of course there is always room for improvement, and we’ve had our stumbling blocks along the way – like hidden fees, share class confusion, certain negative aspects around stock lending – but the ETF industry is going in the right direction towards transparency and low cost.

It is also clear from the attendee numbers at the conference in Florida – around 400 more people than last year – that enthusiasm to learn about these products is not waning.

In 2014 alone, the Europe ETF segment saw fees fall to as low as 0.05 percent and indexes reached out to track new markets like Chinese A-shares and the Nikkei 400.

This leaves me to look forward to our own Europe-focused Inside ETFs conference this summer in Amsterdam: who knows that the next six months hold for this industry, but I’m confident it will contain surprises.