2015 Poll Results: Advisers Fret Over ETF Liquidity

At Inside ETFs Europe, the largest ETF conference in Europe, we asked our audience of financial advisers and industry members key questions on the macro economy, their clients’ portfolios and their concerns for asset allocation. We uncovered some interesting results.

The Macro Panel: Where To Invest In 2015. Finding Profits In A New Era of Globalisation

1) Is the U.S. stock market in a bubble?

Yes: 3%

No: 82%

Maybe: 15%

The Wharton School professor Jeremy Siegel agreed with the audience. He argued in his keynote speech that the U.S. price-to-earnings ratio was only slightly above the mean, but definitely not in a bubble.

2) Does the fate of Greece affect your investment portfolios?

Yes: 55%

No: 39%

Maybe 6%

Economist Pippa Malmgren said Greece is like a three-legged horse; it will be shot, we are just waiting to see who does it first. But Samu Lang, CIO from Taaleritehdas Wealth Management, went against the audience by insisting: “the Greek crisis is talked about daily on the news and all kinds of crisis scenarios are built out of it, but I find it having little relevance on longer-term global ETF porfolios.”

3) Do you have a positive view on emerging markets?

Yes: 75%

No: 16%

Not sure: 9%

The panel seemed to agree that a Fed U.S. rate hike did not spell out disaster for emerging markets. However, Steen Jakobsen, CIO of Saxo Bank, said that investors should not treat the asset class as one homogenous set of countries, especially now that weak commodity prices are driving divergences across the region.

Panel: Liquidity Risks In Niche Markets: The Great Cover-up

1) Would you prefer active management in a niche market?

Yes: 72%

No: 11%

Not sure: 17%

It is generally well known that financial advisers prefer to use a passive fund in a seemingly “efficient markets” like the U.S., where there is a lot of liquidity and limited opportunities to generate alpha, whereas they would opt for an active manager to pick stocks in more exotic corners of the globe. This survey result backs up that statement.

2) Are you confident when it comes to measuring ETF liquidity?

Yes: 11%

No: 72%

Not sure: 17%

Law firm Athur Cox partner Adrian Mulryan responded to these results: he said fund size, trading volume and turnover are all important factors to analyse liquidty.

3) Are ETFs just as liquid as the underlying asset class?

Yes: 21%

No: 79%

Don’t know: 0%

Many advisers are convinced that the ETF wrapper and its underlying assets are two different pools of liquidity. This makes sense when you consider that assets like corporate bonds can be less liquid (wider spreads) than the corporate bond ETF, as Maria Psarra, head of trading at Prime Wealth Group, pointed out.

Panel: Finding Income with ETFs

1) Do you use ETFs for income-focused areas of the market?

Yes: 22%

No: 67%

Sometimes: 11%

The panel, which included WisdomTree Europe’s Viktor Nossek, Credit Suisse’s Sacha Widin and iShares’ Brett Pybus, outlined several income-producing assets like Master Limited Partnerships, dividend-focused strategies, alternatives and commodities – all of which are available via ETFs. However, our audience was still more familiar and comfortable with actively managed funds in these areas, and would more likely choose an ETF to track a mainstream equity index like the FTSE 100.

2) Do you worry about the risk-return ratio in your portfolio?

Yes: 100%

No: 0%

Don’t know: 0%

The audience admitted that the search for income has caused concern for the amount of risk in their client portfolios. No wonder, when bond yields are so low and investors are being pushed into more equity-like assets.