UK asset managers have three years to launch exchange-traded fund (ETF) strategies or run the risk of failing to get new products off the ground, London-based ETF provider HANetf warns.
As the UK and Europe’s asset management industries continue to follow the path set in the US, ETF growth is outstripping mutual funds, with flows far in excess of sales of legacy products. More and more asset managers are reacting to this shift by launching their own ETFs, with several well-known groups launching products this year alone.
For those yet to be convinced, however, Hector McNeil, co-CEO of HANetf, warns that time is fast running out. ‘An ETF is just a piece of technology that has streamlined the investment process and essentially digitized investing,’ he says in a statement. ‘But this piece of technology is increasingly important when it comes to distribution, and unless asset managers start to implement such solutions within the next 36 months, it may be too late for them.’
McNeil explains it takes a number of years for ETFs to gain recognition and momentum, and reach a size where they are sustainable from a cost point of view. As such, unless asset managers take them seriously now, they may fail to gain enough assets to make them viable as products for their business.
‘It can take two to three years to get traction in an ETF so if asset managers have not launched these solutions by 2021, they could struggle to get them off the ground,’ McNeil says. ‘Asset management groups have told us they are holding back from creating an ETF strategy because they fear cannibalizing existing funds, have concerns around the cost of launching and worry that, with so many ETFs already available, they would struggle to garner interest, but many of these fears are overblown and can be overcome by engaging with the ETF industry more closely.’
McNeil highlights fears over existing monopolies as one such area that would be less of an issue if asset managers focused on creating ETFs for specific strategies. ‘There is no monopoly in active ETFs built around specific products at the moment, so that is an opportunity for asset managers, and the cannibalization and cost points are also often overstated,’ he explains.
He adds that while it makes little sense launching products where price and scale are the only factors – such as FTSE 100 trackers – there is a much wider business case for launching other products.
‘The fact is that if they don’t have a solution in this space soon, someone else will take their slot, so they need to consider how best to approach this growing market, especially as the way people invest is changing and becoming more suited to ETFs than legacy products like mutual funds,’ he concludes.
