Matthias Scheiber: making the right moves in ETFs

Matthias Scheiber, partner and fund manager at Aethra AM, talks to Joanne Young about how making the right choice with ETFs is more important than searching for outperforming active managers

How does Aethra use ETFs?
Aethra Asset Management is a small asset management boutique based in London and Amsterdam. Our focus is primarily on absolute return mandates and that is where we use ETFs. We have one portfolio, for example, made up entirely of ETFs with a mandate of cash plus 4%.

The amount of money we manage in ETFs is still quite small because we are building up our base of strategic investors, but when I was at ABN Amro we had up to £500m in ETFs. That just shows how huge the demand is, especially from conservative clients like insurance companies and pension funds who are wary of the volatility of equities. When they are looking for additional return at a time of low interest rates and rising inflation, ETFs are a fantastic tool. 

What are the advantages of the product?
As an asset allocator if you take a view on an asset class, the important thing is simply to get exposure. We think 90% of overall return comes from choosing the right asset. If the FTSE goes up 10% or 15% the most important thing is that we called it right – a 2% outperformance on top of that is relatively minor. Investors could diversify between small and large cap US equities, but the biggest decision is choosing to invest in US equities in the first place.

There are ETFs on a huge number of asset classes, particularly in comparison to other delta one products. Management costs are usually very low and there can be significant tax efficiencies. If a private client wanted to build up their portfolio with exposure to the FTSE 100 it would be very cumbersome, but with an ETF, they are doing it with one instrument. These products are really facilitating diversification.