Deborah Fuhr, ETF Pioneer In Europe, Honored

[LONDON – This article was first published in our Summer 2015 edition of ETF Report UK, our quarterly magazine for UK-based financial advisers]

Deborah Fuhr is widely considered the voice and face of the European ETF industry.

As head of research and product development at Morgan Stanley in 1997, she was there when large providers such as Vanguard and iShares were in the early stages of launching families of ETFs for investors in the US, with Europe's ETF market still a distant dream. It was in that role that London-based Fuhr emerged as one of the world's most respected voices in the ETF space.

Nearly 20 years on, the landscape is very different, as is Fuhr's place in it. Now Europe's ETF industry alone is worth nearly $470 billion in assets invested in more than 1,400 ETFs. And Fuhr is never at rest, as she jets around the globe, gathering information and contacts for her independent consultancy business ETFGI.

As founder and board member of the pioneering group "Women in ETFs," Fuhr is also flying the banner for women to network, gain experience and contribute even more to the sector.

Clearly, her day-to-day role, her wealth of knowledge and experience, as well as her advocacy for women in this industry, have earned Fuhr ETF.com Europe's first Lifetime Achievement award.

Fuhr, however, says she has no plans to retire and will continue to strive to "make herself useful."

Congratulations on winning our first-ever Lifetime Achievement award in Europe.

I'm honoured to win the award and to be voted for by peers in the industry. I think the challenge is it makes you feel like you should be retiring and I have no desire or expectation to do that.

I love being part of this industry—it's fun, it's exciting and I'll be working for a long time and hopefully will continue to do useful things that people will view as worthwhile.

You spend a lot of time on the road. How do you cope with that?

I do spend a lot of time travelling. I think it's very important to travel and meet people. When you don't go to places, you don't know what you don't know. So trying to have some insight on a global level of the ETF ecosystem really requires you to experience the local culture and what's happening there. Since 1997 I've been to 56 different countries.

That can't be easy.

But what makes it easier is many people are both work colleagues and friends. To have stayed consistently in the same relative area has been beneficial, as the ETF network may have grown a lot but there is this core group of people who have grown up together, talking about ETFs.

When I started out, there were 21 ETFs with around $8 billion in assets. March saw the 25th anniversary of the first ETF listing in Canada, so it's exciting to be part of that and know people in almost every market where ETFs are listed, helping people to understand the trends, helping people where ETFs are being launched for the first time.

What were the biggest moments of the ETF industry?

That's a challenging question, as I've been involved in this industry for so long. The original iShares funds were called WEBS—world equity benchmark shares—and they were on the back of a product called OPALS [optimised portfolio as listed securities] we had at Morgan Stanley. At the time, ETFs were very innovative tools that allowed all investors to get access to international markets including Korea, Taiwan, Malaysia, which otherwise were very difficult to get access to, as you had to apply for permission to invest and open certain bank accounts.

We now have ETFs listed in 51 different countries, from Egypt to Vietnam, and they work in developed and emerging markets. The first products were equity products in Canada in 1990. It took 10 years for the first fixed income ETF to come about. Yet most newspapers and TV stations still talk about the performance of equity indices and not fixed income.

The launch of Barclays Global Investors made me realise ETFs are very unique and democratic products, and by that I mean they offer the same toolbox at the same annual cost to all types of investors with the same minimum investment size, which is tiny.

Gold products were also a big deal, as gold was normally reserved for central banks, and investors can use gold as a safe haven and inflation hedge.

As for 'smart beta,' I don't particularly like the term, as it's not well defined. But indices based on risk factors that deliver premia are a new trend that's growing very quickly.

Furthermore, some countries—like India and China—have used ETFs to open up their market. They are finally becoming a product that people embrace as a useful tool in many ways. Having said that, they're not the only tool, so people should make decisions based on facts and understanding.

How has the Retail Distribution Review in the UK influenced the view and use of ETFs?

Regulation that banned financial advisers from being paid to sell products and requiring that they listen to what their clients need was a huge change and clearly beneficial for more than just ETFs. The Financial Services Authority, as it was then, wrote to financial advisers that they should look at the whole of the market, and if advisers recommended a more expensive product to their clients, they should justify why that is.

The RDR also threw more light on active funds. Governments have said it's hard to find consistently performing active managers and that pension funds here in the UK should look at index exposures.

People have begun to think of ETFs as a solution, and where they can't find alpha in active funds, they can use ETFs, which cover so many markets and asset classes. You can also find currency hedged ETFs now, which are really useful, as the dollar has been rising since July 2014—this is a small tweak on a product level but one that adds a lot of value to the investor.

Are we on the right path to achieving more liquidity, or at least more on-screen liquidity, within ETFs in Europe?

Most people don't realise the extent of the issue and it has, in fact, hindered growth and adoption of ETFs, as investors think they're not very liquid when they compare them to the US ETF market, where daily ETF trading volumes are about 28% of all trades and make up four-fifths of the most actively traded securities. They ask why that's not the same here on an individual product or aggregate basis.

I think we will always have fragmentation in Europe, as there are many countries, and many retail investors struggle to buy products that aren't listed on local exchanges. However, I do think Euroclear's initiative to create the international security version of an ETF is a useful innovation.

I also think that trade reporting is an issue under the current MiFID regime, so many people don't understand that ETFs don't have to be reported on most exchanges. But MiFID II will require trades to be reported, and there are also questions in the air about a consolidated tape in Europe, like in the US.

Did you envisage the phenomenal growth of ETFs when you started?

I did believe ETFs would be a useful product and would have a bright future. When I first started it was a bit difficult to envisage that success, as the typical response from London was: "I'm a financial adviser and I'm not going to talk about or use ETFs unless you pay me a rebate," while active managers said: "We're active so we're not going to use passive funds."

I think by 1999 things were changing. Some of the big asset managers like iShares, State Street and Vanguard all wanted families of ETFs, regulations changed and more people tried them, saw how useful they were and held them for longer time horizons, and ETFs came to be thought of as a solution.

In the early days, when I was told my job was going to be marketing and product management for ETFs and OPALS from Morgan Stanley, I thought everyone would know what ETFs were after a couple of years and I would have to manage the transition of my career into another area. But clearly that is not the case, and investor education is arguably more important than ever before.

Take me back to pre-ETFGI. How did that business come about?

Let me take you through the earlier steps first. From 1997 to 2008 I was a managing director at Morgan Stanley within investment strategies. It was about helping people look at how they might implement asset allocation based on calls from strategists and analysts, and then looking at how to compare using ETFs, swaps, certificates, futures, how to transition securities lending and execute yield enhancement trades. I loved working there and working for different parts of the firm.

I joined BGI on the day Lehman filed for bankruptcy on 15 September, 2008. It was an interesting first day! My job was managing director and global head of research and implementation strategy. It was great, as we were able to come up with some products, research the industry and how many people use ETFs.

But I found I missed working directly with people. I thought it would be better to go back to having one-on-one contact with investors and people in the industry, so that was what really drove us to found ETFGI.

As more and more institutions are releasing ETF data, do you feel threatened by the competition?

Many people like to have a source of information that is consistent and global. Every month we produce a 350-page report on trends. We spend a lot of time cleaning data and sourcing data. We speak to index providers, exchanges and regulators, and are always looking for new sources of information. We have a team of five within the firm and we use consultants as needed for bigger projects. Collectively our team has over 30 years' experience covering ETFs.

There's no one else I know of who looks at the ETF ecosystem and the trends across it: who the investors are and how they rank. We really are measuring the ecosystem and doing it globally.

What are your three strongest qualities?

Perseverance; not taking myself too seriously and trying to have fun; and being passionate about what we do and trying to do a really good job by setting high standards for myself.

What was the moment when you thought the industry was calling out for the launch of Women in ETFs?

The thought was at an event in the US when Linda Zhang from Windhaven and Joanne Hill from ProShares and I were sitting around talking. Linda had recently got involved at Windhaven as a portfolio manager—she didn't really know the industry or ETFs. You need to understand trading, settlement, asset classes, different types of clients—all of which I think is quite complicated.

For the financial industry, the number of women within these organisations is often quite small and limited in the number of functions, and women don't tend to sit at the higher levels. So women might struggle to find a sponsor to mentor them or be afraid to ask questions, as they don't want to ask something they think they should know. I've learnt a lot over the years based on what I've done and it would be nice to give something back.

How many people does it take to bring about change like Women in ETFs?

I think there's a lot of work going on in the background, from the US, Canada and Europe—everything from preparing the PowerPoint slides and logos to sending out our press releases and getting the venues ready for events.

It's not something one person can do on their own, or even a handful—it takes a whole group. People are committing time and resources, which are precious.

We now have over 700 members, with chapters in the US, Canada, Europe and Asia Pacific.

What is the benefit of having more women in the ETF sector?

There are a lot of studies out there, but what's easy to relate to is that if everyone is the same race, gender and age, there ends up being "group think." No one will disagree because everyone is similar. But if a company is brave, innovative and challenges the status quo, that translates into better financial results.

It makes sense. It's not just a nice thing to do. It's a good thing for society and business