Australia lags the world in institutional uptake of ETFs


Speaking yesterday at an ASX conference on Exchange Traded Funds, Deborah Fuhr, Managing Director of investment company BlackRock, said that while retail investors in Australia had embraced ETFs, institutional investors were slower to adopt them due to a lack of familiarity with these types of products.

In the US the ETF market has over a trillion dollars under management and represents a quarter of all equity trades, where the majority of investors are institutions.

According to Ms Fuhr, “Institutional investors benefit from being able to access ETF products that offer investment in a wide range of asset classes.  Normally they would need a very large team of people working across all the asset classes to deliver the same result.”

“However, it’s important that all investors understand the product they are buying, the underlying structure, and the tax implications,” she added.

Ms Fuhr also pointed out that ETFs have different regulatory treatments and tax treatments depending on the type of underlying asset.
She also spoke about the popularity of ETFs for short term transitioning between managers, and in some cases a tactical longer term investment.
“Sector ETFs are useful way to park funds for short term or for long term tactical use such as reacting to world events such as floods and other disasters. Over the course of 2011 investors were able to easily adjust their allocations to various markets and asset classes by rotating into and out of various exposures, such as events in the Middle East, droughts and floods.”
Ms Fuhr concluded that “ETFs offer transparency of costs, underlying liquidity, and access to a wide range of global ‘alpha’ producing assets or commodities which might be otherwise difficult to buy into.  They can also be useful to rebalance portfolios and provide an alternative to futures or derivatives where these are ‘ruled out’ in some funds.”
The inaugural ASX Exchange Traded Fund (ETF) Conference celebrates 10 years of ETF trading on the Australian Securities Exchange (ASX).

Click to download a copy of  BlackRock’s report Celebrating 10 years of ETFs in Australia

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