Day 2 of the Inside ETFs conference in Hollywood, Florida concluded with a panel discussion amongst senior executives from some of the industry’s Titans in fund management and indexing including Vanguard, Invesco, BlackRock, SSgA, MSCI and Van Eck. The panelists were asked for their opinions on ways to improve the ETF industry and what types of innovation we might expect in the coming years.
It was widely agreed upon that ETF Issuers can all improve the degree of communication with investors especially in regards to Smart Beta to make the due diligence process easier by clearly explaining how the underlying strategy of the ETF is designed. This is important especially as many strategies are moving from a mix of asset classes to factor based investing.
One main talking point the panel highlighted was that the industry is shifting largely to factor based investing, looking to exploit market weakness by combining Factors such as value, size, volatility, growth and momentum. These types of investment approaches have existed for decades to centuries, but until technology could properly scrutinize them quickly and efficiently, most ETFs relied on a mix of asset classes or perhaps one or maybe two factors in their effort to outperform their benchmark.
It’s obvious that education for both Issuers and investors is key in the move towards multi-factor products. Technology vendors both large and small will play a big part in how these new products can set themselves apart, especially for second tier Issuers who don’t enjoy the development resources of the top tier firms.