The next wave of ETFs
A different model and new technology can drive ETF growth, writes Pedro van Gaalen
Due to market saturation in cap-weighted exchange traded funds (ETFs), issuers have sought to innovate to differentiate their offering, while also looking to deliver market-beating returns. A number of nonmarket-capitalisation index-weighting strategies have emerged, led predominantly by smart beta funds that leverage rules-based investment strategies. Additional innovation has taken the form of active ETFs and funds that offer emerging market exposure, access to impact investing via environmental, social and governance ETFs or exposure to hyper-growth sectors such as cannabis, industry 4.0 technology or cryptocurrencies. The pace of this market innovation also accelerated following the ETF industry’s race to the bottom in terms of pricing, believes Charles Savage, CEO at Purple Group. "Now that we have zero-rated ETFs, cost is no longer a differentiator. Issuers are grappling with how to differentiate themselves and compete on no margin." A shift to a platform-based business model ...
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