By looking at annual flow numbers and assets under management, it is clear that exchange-traded funds (ETFs) are more than just a trend. Some market observers are already concerned, as they expect ETFs to take over the majority of assets under management for investment vehicles in the foreseeable future. Even as this might be too optimistic, it seems like ETFs have become a threat for active managers, as more investors are considering ETFs as their investment vehicle of choice. With regard to this, all fund promoters need a strategic view on their role in the competition between ETFs and traditional mutual funds.
During his presentation called "Launching, Competing and Winning - What Traditional Managers Need to Know," at the Refinitiv ETF Academy on July 3, 2019 in London, Nik Bienkowski, co-founder and co-CEO of HANetf, discussed what asset managers need to do to succeed in the fast-changing fund landscape in Europe.
Bienkowski pointed out that the increased use of ETFs is reshaping the asset management industry at the moment, and that this won't stop as the demand for ETFs is driven by regulatory tailwinds, structural market developments, and changing investor preferences. With regard to this, Bienkowski said that ETFs are a wrapper with powerful distribution potential which asset managers can use to deliver their existing products to investors. Therefore, asset manager do not need to think of ETFs as being a new business. Instead, they should see ETFs as an extension of their existing distribution strategy since an ETF offering enables asset managers to reach every type of fund buyer, from large institutions to retail investors. In addition, ETFs help to access new clients, as the number of ETF-only investors is increasing. In this regard, it is not surprising that more global asset managers are building ETF offerings, as they are recognizing this distribution opportunity.
With regard to the structural market developments, Bienkowski pointed out that the world is becoming increasingly automated and more investors will trade securities and funds on their phones and tablets, which is beneficial to ETFs. He also mentioned that ETFs align the asset management industry with an on-demand world, as services like Amazon Prime have changed consumer behavior and expectations. As a result, investors nowadays expect that product information and prices are instantly available and that the delivery of goods should take less than 24 hours. This is especially true for the new generation of investors, as they are digital natives and will therefore do things differently than established investors. This means they may not stick with their parent's advisor or fund provider if it doesn't meet their needs or demand.
Bienkowski summarized that it is not too late for fund providers to formulate their own ETF strategies if they don't already have one. Even if the strategy is "do nothing now," it is better than nothing, he said. Bienkowski also pointed out that it can take a long time from developing a strategy to the internal approval for strategic implementation.