Exchange-traded funds (ETF) perform strongly in terms of transparency and cost effectiveness, and are expected to become increasingly important to both institutional and private investors, according to a specialist committee on ETFs at the Swiss Funds Association (SFA).
Stephan Müller, chairman of the Swiss Funds Association’s specialist committee on ETFs.
The comments were made at a recent media conference held by the SFA in Zurich and come after the publication of data showing that ETFs account for a steadily growing share of the fund volume booked in Switzerland.
The SFA committee, which comprises representatives from a number of the major players in the Swiss ETF industry, including, among others, UBS, Swiss & Global, iShares and SIX Swiss Exchange, noted that while ETFs may not be attracting as much media attention at present, recent growth in assets under management has been strong and is expected to increase.
“This growth trend will increase further over the long term since ETFs can be suitable asset management components for private and institutional investors alike,” said Markus Fuchs, SFA Senior Counsel.
On investor protection and transparency, the committee’s chairman, Stephan Müller, who is an executive director at Swiss & Global, suggested that ETFs have to meet more stringent requirements compared with conventional investment funds.
“ETFs set high standards, particularly with regard to transparency in portfolio construction, the index requirements, and the data basis for exchange trading in fund units,” said Müller.
Fellow committee member Markus Götschi, a product developer at UBS ETFs, added: “One of the facets that characterises an ETF is that it replicates the underlying index as exactly as possible, thus giving the investor the risk and return potential they expected when they chose this index.”
The superior tradability of ETFs was also emphasised by the committee, with it noting that investors can place orders ‘over the counter’ (OTC) as well as on-exchange, thus enabling investors to efficiently trade large tickets at attractive terms in different currencies.
The committee commented on the wide range of investment opportunities offered by ETFs, such as the provision of access to a vast array of indices covering equities, bonds and commodities, and highlighted that ETFs can be more cost-effective than many conventional investment funds.
The committee said that ETFs typically avoid concentration on too few individual securities, and are highly transparent in terms of fund composition, performance, and costs. This, it maintained, would gradually be recognised by private investors who are increasingly likely to include ETFs in their portfolios.
“In our view, new distribution channels will also contribute to making the use of ETFs more widespread. Financial advisors in Europe are increasingly offering fee-based advisory models, which tends to benefit products that are efficient and offer good value for money in particular – such as ETFs. This change has also been driven by the regulations, including those here in Switzerland,” said Dr Christian Gast, Managing Director and Head of iShares Switzerland.