New markets spur the global growth of ETF products
Yie-Hsin Hung: Welcome, Debbie. Thank you so much for joining us today.
Deborah Fuhr: Thank you for having me.
Yie-Hsin Hung: So let's just jump in. Your company, ETFGI, specialises in providing data, analysis, and research on global ETFs, which makes it such a valuable tool for those of us in the industry. Can you tell us more about the range of services your company provides?
Deborah Fuhr: Sure, I'd be happy to. So I think you can think about what we're trying to do is provide tools that allow investors, issuers, exchanges, regulators, anyone in the ecosystem to search and find information on specific ETFs. We have a database of all ETFs, but also to produce reports that allow people to gain insights from what's happening globally in the US, Europe, in smart beta, in ESG, thematics, crypto. So basically we're looking at manager rankings, net flows, fee analysis, listings, cross listings, delistings, index changes, etc. So anything that's happening. We also look at who are the investors that use ETFs, where are they based and what types of ETFs they hold. We also produce events. And then we do ETF TV. So we do updates on what's happening on a weekly basis in new listings and also other innovations or regulatory changes that are happening.
Yie-Hsin Hung: That is so incredibly comprehensive.
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text: Women in ETFs
Yie-Hsin Hung: In addition to being a founder of ETFGI, you started Women in ETFs. And so I'm kind of curious, at what point did it become clear to you that there was a real need to promote gender diversity, equity and inclusion in our ETF industry?
Deborah Fuhr: I've been doing research on the ETF industry for over 26 years. So I spent 11 years on the sales and trading floor at Morgan Stanley. And so if I think back to then, I was one of 11 female managing directors on the trading floor in Europe. And so there weren't a lot of women. So my thought was it made sense to create a group where you could connect, support, inspire women and diversity in the ETF industry. It's been an exciting journey. We have 8,500 members, 17% are men, so we do want the allies. And we have chapters all over the world. We have over nearly 30 chapters.
Yie-Hsin Hung: That's phenomenal, just the amount of impact you're having.
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text: The fastest areas of growth
Yie-Hsin Hung: And so maybe to back up a little bit and just think about where you see around the world the fastest areas for growth.
Deborah Fuhr: That is a really challenging question because there are ETFs in 63 countries. Over the years, I've travelled to 65 countries, helping people understand how and why to use ETFs. And you find that the challenge is, until someone uses an ETF, they don't really know what they are. But once they use them, you find that they use them a lot more, in more ways and in larger sizes. And so the challenge is to get people to try them once. And I think the unique thing about ETFs is they're the only democratic investment product out there. So think about it, you could be buying an ETF in your own account, but we also have the Fed using ETFs, we've had the Bank of Japan using ETFs, hedge funds, sovereign wealth funds, asset managers, financial advisors, and the growth of retail has been very important. But I also want to say, you look at markets that are opening up and embracing ETFs for the first time. In Brazil, the largest market in Latin America historically had been not a place for ETFs. Tax reasons, regulatory reasons, they allowed the introduction of Brazilian depository receipts on ETFs, mostly from the US and so we see now over 200 ETFs from the US available. And we're like ETF 101, they don't really understand indices, asset allocation, trading, but a big opportunity. We see other markets where the pension regulators have told their pension funds to use ETFs. You think about Mexico has been doing that for a long time, Chile has been doing that for a long time, Peru. And now they're looking in Chile at expanding to allow pension funds to use active ETFs. So it's incremental, ETFs were only equity products for a long time but anything that fits in a mutual fund can fit inside of an ETF. So it's not just about index. And I would say even when it is index you have to remember that 90 per cent of the variation returns comes from getting your asset allocation right. So you can deliver alpha through asset allocation. And so people who use ETFs are not passive. Many of them are strategically using ETFs as a core part of the way they do their asset allocation. And I think that's really important to remember.
Yie-Hsin Hung: I agree with you. I think ETFs, as you say, are building blocks for portfolios and they provide a myriad of investment exposures and so from that standpoint, they have really democratised investing.
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text: Untapped opportunities for growth
Yie-Hsin Hung: So you've touched upon some of the opportunities for growth. When you think about existing and new ETF providers, are there any untapped areas that you think are left to explore?
Deborah Fuhr: I definitely think there are, when you look at opportunities, you have to think about who are your clients. So if you are an asset manager and you have really good relationships, you might find that creating ETFs that look like your traditional mutual funds make sense. We've also seen in the US that a lot of the active mutual fund managers are converting their mutual funds into ETFs. So we've seen Dimensional do that, Capital Group and others. That's a benefit for end investors because the ETF wrapper is more tax efficient than mutual funds. It also means you can carry over performance and assets so the size of the product is bigger and it allows investors to get in and out in small sizes anytime during the trading day. And we found new people who come to market with ideas around using different strategies in ETFs. We've seen people looking at new markets, looking at more fixed income. Some people are looking at crypto exposure. So I definitely think that there are opportunities when you think about the array of products that sit within mutual funds and you compare that to ETFs, there's a big oyster of opportunities, but you have to make sure you have the right product in the right place at the right price and you promote it to people.
Yie-Hsin Hung: It makes perfect sense.
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text: The next big thing in ETFs
Yie-Hsin Hung: So you've been watching and part of this industry, this exponentially growing industry for a long time. I do have one final question, Debbie, and that is what do you see as the next big thing in ETFs?
Deborah Fuhr: I think the next big thing is just making sure more people know how to use ETFs, that they understand the different ways they can be used and that people are really doing that education. There's clearly product opportunity, there's opportunity in new markets. There's also opportunities in how ETFs are being used as building blocks. I think retail is a huge opportunity around the world. We're just seeing that really scratch the surface in many markets like Europe, Latin America and Asia. I think model portfolios and helping people how to invest is really important when firms like yours and others that have real expertise can help people think about whether they want to be low risk, moderate, dynamic, or whether they want target date strategies. So I think it's just providing more advice and services to go along with the growth in the products to allow people to do what they want to do when they want to do it.
Yie-Hsin Hung: That's great. You make very clear that the value proposition of ETFs just continues to grow. So Debbie, I want to just thank you for being a pioneer in this industry and sharing your insights with us today. We very much appreciate your time.
Deborah Fuhr: No, thank you. It's a great industry to be in. I'm glad I stayed in it.
Yie-Hsin Hung, President and CEO of State Street Global Advisors and Deborah Fuhr, Managing Partner and Founder of ETFGI, and Founder and Board Member of Women in ETFs, examine untapped ETF market opportunities (and how to capitalize on them).
ETFGI is a leading independent research and consulting firm offering subscription services covering trends in the ETF ecosystem. It also maintains a comprehensive database of all ETFs globally. In addition to being a founder of the firm, Fuhr started Women in ETFs, a group that brings together people in the ETF industry around the world to champion goals of equality, diversity and inclusion.
In this discussion, Fuhr explains how some markets are now opening up and embracing ETFs for the first time, notably in Latin America. These new entrants are contributing to the growth of emerging products that demonstrate the myriad ways ETFs can be used to benefit investors, many of whom have vastly different investment goals and strategies.
Celebrating 30 years of ETF innovation
2023 marks the 30th anniversary of the launch of the industry’s first US-listed exchange-traded fund. Co-created by State Street Global Advisors, the Standard & Poor’s Depositary Receipts ꟷ better known as the SPDR® S&P 500® ETF, or SPY ꟷ revolutionized index investing, liquidity, asset allocation, intermediary distribution, portfolio construction and overall market access.
Today, among the nearly 12,0001 ETFs in existence, SPY is the largest2, most liquid3 and most heavily traded4 ETF in the world. Our ETF@30 video series examines the past, present and future of ETFs ꟷ and their impact on the world’s financial markets and industries.
1 ETFGI Global ETF & ETP Insights May 2023 report
2 Bloomberg Finance L.P., as of December 12, 2022
3 Bloomberg Finance L.P., as of December 12, 2022
4 Bloomberg Finance L.P., as of December 12, 2022