The ETF tug of war

The ETF industry is being pulled in two directions. At one end, proponents of the traditional, physically replicated fund structure are warning ETFs must not become too complicated if they are to gain greater traction among investors. At the other end of the scale, issuers are creating exotic products under the ETF label, offering access to more asset classes through an increasing array of vehicles.

iShares in the US has won approval from the Securities and Exchange Commission to offer actively-managed ETFs, which could be a watershed for the industry’s product development. Although active ETFs are already in existence in both the US and UK, for the world’s largest ETF provider to launch active funds would be making a significant statement. The firm is now able to market active ETFs investing in equities, fixed income, as well as a mixture of the two asset classes. It will be interesting to see how iShares ensures the funds are transparent, by reporting creations, redemptions and portfolio holdings on a daily basis.

While this may be a small step for asset management behemoth BlackRock, it is a giant leap for the industry. The question though, is whether this is a leap in the right direction.

Emma Dunkley, Editor