ETFs gaining ground but have to prove worth
Exchange traded funds (ETFs) have moved onto a level playing field with actively managed investment products as a result of the Future of Financial Advice (FOFA) reforms — but the onus is still on ETFs for people to invest in them, according to Betashares managing director Alex Vynokur.
He said ETFs had also become more meaningful, and the failure of some alternative investments during the global financial crisis (GFC) had opened the door for the product class.
"Ten years ago there was a limited choice in ETFs but now they are more geared to different goals and are being adopted by financial planners for different client strategies," Vynokur said.
"The GFC and FOFA have created a strong opportunity to deliver value via sensible solutions, with the latter [FOFA ]requiring planners to demonstrate their best interest duty as well as removing commissions on investment products, which had been a barrier for ETFs," he said.
Vynokur stated that ETFs were not an all-or-nothing approach but should be used in conjunction with actively managed products as to address issues around longevity risk in retirement and to provide other sources of capital growth.
Planners and their clients were looking to ETFs to provide yield in client portfolios, Vynokur said, and that this search would continue for the foreseeable future.
"This is not a temporary fad but the result of a demographic shift brought on by those close to or in retirement who have found that the traditional ways of finding yield, such as cash and term investments, are losing their effectiveness," he said.
"Taking into consideration the real interest rate, the return on cash on call is actually negative and those in cash are seeking other sources for yield and are leaving the sidelines."
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