FTfm staffing levels will drop over the festive season as the team try to use up their left-over entitlements before the holidays expire. So we won’t be blogging much… if at all.
When we are all back in January this blog will be migrating to a new platform that will hopefully accommodate the way we have noticed you using it. Topics that interest you will stay open, and visible, for longer. You will also be invited to add your comments to columns written by our regular contributors.
We’ll let you know more as soon as we’re back. And, in the meantime… Best wishes for Christmas and the New Year from FTfm!
The exchange traded fund industry has been feted as offering low cost access to a wide range of investment opportunities. It has occasionally had its knuckles rapped for getting over-enthusiastic about short and leveraged products that may not track in the way investors expect. But generally, the plain vanilla FTSE 100 or S&P 500 ETFs have been seen as A GOOD THING.
Now along comes Watson Wyatt to throw a bucket of cold water on the ETF party. The consultant says institutional investors can get a better deal elsewhere. There are institutional index products with lower fees, a better tax structure, and less or no counterparty risk.
Remember when exchange traded funds seemed like the good guys? When they were a cheap, efficient and transparent way for investors to track an index?
Those days are long gone.
Synthetic ETFs using derivatives, inverse and leveraged ETFs, unsecured exchange traded notes, all of these are muddying the waters for simple folks who just want good value investment. They do presumably all have their place, but they tend to undermine the proposition of ETFs as simple and transparent.
The latest is a reverse convertible ETF, shortly to be launched in the US by Rich Investment Solutions, run by Kevin Rich, who was previously responsible for Deutsche Bank’s initiative in bringing commodity ETFs to the US. Reverse convertibles are a structured product too complicated to explain here*. Press releases claim the ETF will simplify this structure, although I’m confused on how an index writing “down and in” options each quarter on the 12 most volatile stocks in the S&P 500 is really simple.
Again, there may be nothing wrong with this product at all, but if I were a physical ETF producer, I would be lying awake at night worrying about the brand. It’s hard to tell people you have a product they can understand when they can see something with the same name tracking reverse convertibles.
One in three Americans believes aliens have landed on Earth and are dwelling among us. There are quite a lot of things they do not believe in, however, including the importance of the fluffy stuff in investment.
Parallel reports from the European and US social investment forums on the perception of environmental, social and governance issues among investment consultants seem to show American consultants are much less comfortable with the concepts and less inclined to see them as a natural part of investment consultancy. This despite a general belief (expressed by 88 per cent of respondents) that client interest in these matters will increase in the next few years.