The second day of the “Empowering Investment Advisors” conference kicked off in Denver on Tuesday with a look ahead at the ETF space. The conference was jointly hosted by back-office provider Orion Advisor Services and do-it-yourself alternative investment developer Gemini Fund Services (both companies are owned by the same holding company).
Noel Archard, head of product function for BlackRock and responsible for research, development and management of iShares in capital markets, took center stage for the opening keynote.
Archard began by noting the steep rise in ETF product from as recently as 2008, when iShares had 170 ETF offerings, State Street had 80 offerings and other vendors offered roughly 150 products among them, for a total of about 400 ETFs.
“Fast-forward to today, and there appears to be a new product release on a daily basis, with roughly 1,400 products,” he said. “And there’s plenty of room for growth.”
His brief history of the rise of ETFs included the point that they were initially an indexed-based product, but as more money managers and advisors looked for products that mirrored their own investment styles, ETFs that followed custom-built benchmarks began to appear.
“Those that follow the custom-built benchmarks are often more accurate than what active managers can achieve,” Archard said. “They are very black-box and have high turnover.”
He quickly moved through recent innovation in the industry, beginning with inverse ETFs, which are designed to perform as the inverse of whatever index or benchmark it is designed to track. He cautioned the audience about their use, however, noting that clients might not understand the product and how it works, which raises point-of-sale suitability concerns.
He then moved to a discussion of so-called replication ETFs, which mimic other available investment strategies but in an ETF format, and added they have yet to attract a significant amount of assets. He also mentioned ultra-short duration funds and their effectiveness in relation to low interest rates and target date-based products.