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.
Investment consultants continue to urge savers to take the risk of stock market investment when investing for their retirement.
Mick Calvert of Watson Wyatt is quoted in an interactive graphic on FT.com dealing with the pension crisis as saying:
“Strategically and looking long term, now would seem to be the time to be putting more rather than less into equity markets if its’ affordable.”
A more considered view comes from Ros Altmann, an independent pensions expert. She says: “There is no financial or economic rule that says just because you invest in the stock market you personally are going to do better than risk-free assets.”
People who want security and cannot afford to take risks would be driven to index linked gilts, or some sort of protected equity investment, she says.
Relying on the equity bet has let down many people close to retirement. Prices are lower now, but there is no expectation market volatility is a thing of the past. So what makes it safe to go back to relying on equities, and how long is the long term?