IU.com: How do you see the landscape for ETFs going forward?
Del Ama: If you look at assets, the ETF market is very much a passive-type market, and the big asset classes have been provided for. There will be some innovation that we will see, but I think it will be more on the margin. Products like the volatility strategies and BulletShares are some innovations we’ve seen, and we’ll continue to see things like that.
At this point, the question is, can alternative indexing opportunities or active opportunities really succeed on a meaningful basis? We’ve certainly seen recently that a lot of these alternative indexing strategies have done pretty well.
For example, I would categorize our GURU (GURU | C-48) ETF as essentially the only ETF we have that is specifically designed to generate alpha versus a core U.S. equity benchmark over the medium to long term. We’ve certainly been successful since inception in raising assets, and there are a number of other products that are doing well. We’ll continue to see some innovation there.
From the active perspective, I think it's still all about how good the manager is. We’ve seen that with a great asset manager like Pimco going into the market, they’ve been very successful at gathering assets. To the extent that you have other very good managers that embrace ETFs and make the jump into ETFs, that will also drive growth within the ETF marketplace.
Finally, more so than new products, I think what’s going to drive growth is just the penetration of the user base. I can’t tell you how many conversations we have with our clients who say they want an all-ETF version of portfolios currently comprised exclusively of active managers.
You have a lot of financial advisors that manage very large amounts of capital in practices fully comprising actively managed mutual funds or separately managed accounts, and clients are coming to them and saying they want an all-ETF solution or an all-passive solution.
From my perspective, the big growth in ETFs will continue, but it’s going to come less from product innovation on a relative basis, and more from a much higher penetration from a client-use basis.
IU.com: Is there any lesson from the crisis that you think ETF investors should not lose sight of as the economy recovers?
Del Ama: We learn from history, and history has taught us some of the things we should care about. Investors in 2008 cared about a number of things, such as the fact that they invested in a number of vehicles they couldn’t liquidate at the time. Because of that, liquidity has become a much bigger consideration for a lot of investors, and so has transparency—knowing what they’re holding—and counterparty credit risk.
Today investors are much more mindful of how they manage any counterparty credit risk exposures. In 2008, investors in general also lost a lot of capital, and performance became another big issue—one that has led to the way we construct portfolios today, whether from a diversification perspective or a more tactical perspective in terms of risk management. It’s important for investors to generally participate in the market but learn from these lessons that they need to have well-diversified portfolios.