Expert gives Aussie ETFs the nod

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During a visit down under, an overseas expert in ETF business has made positive comments about the fund’s scope for growth, but says there is still a way to go in its uptake here.

Frank Henze, the managing director of State Street Global Advisers (SSgA), told Wealth Professional that exchange traded products (ETFs) are an increasingly important investment product for the Australian market.

The uptake of ETFs here flows from an adviser community looking for more dynamic products, the steady growth of private wealth in superannuation, and the preferred self-managed investment style of clients.

“If you have a constant flow of money, an advised market, and an interest of the client to be active, that is a great recipe for the use of ETFs,” said Henze, who oversees the SPDR ETF business in the Asia Pacific region.

Despite the good outlook, he said the uptake of ETFs is still slightly higher outside of Australia, which leaves the country with scope to grow.

Because the funds are now a global phenomenon, there is a greater desire for investors here to educate themselves and understand how ETFs work by looking at international trends, Henze said.

“We’re going to see the [Australian] market grow because a lot of groundwork has been laid,” he said. “I think the route being travelled is the right one in terms of educating the adviser, but I think there’s still a lot to do – they’re not as familiar with the product as they could be.”

More education will lead to more uptake which in turn creates demand, Henze said, adding that it’s important that Australia moves into phase two of ETF implementation, whereby the fund becomes mainstream.

“An increased ability to obtain data and information will help the wealth professional understand and make the right call,” he said.  “We’ve seen ETFs being implemented from using global investments. As we go forward we’ll see [them] be used more for these types of exposures.”

Part of Australia’s ETF future could lie in passporting, which is the cross-border selling of collective investment funds, and a harmonisation of the regulations and provisions of a fund from one country to another.

“Passporting is interesting – there are pros and cons to all this,” said Henze. “The pro is that countries are thinking about reducing costs and increasing scale, which is good for investors as products become cheaper. But with anything there is a give and take. Passporting takes a long time to be implemented, and it’s probably a longer process than people think.”

UCITS, the European passporting system for example, was introduced in 1985 and practitioners say that it’s only over the past couple of year that it has become powerful.

But the ETF future here remains rosy for now, especially considering that Australia has one of the strongest adviser communities in the world – with only the US to give it a run for its money.

Henze said this has made Australia a leader in many financial trends, with the ban on commissions now been followed in Europe.

“Australia is in a really good position in regards to the uptake of ETF and how the advice is being shaped. There’s a lot of scope still for growth.”

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