ETFs are to be included in the sectors identified by The Investment Association (IA). The association says that savers and their advisers will be able to compare ETFs against the 3,500 funds already in the IA’s 37 fund sectors from the first quarter of next year.The ETFs will be placed within the existing IA sectors, which are designed to enable comparison between open ended funds by dividing them into groups of similar funds based on factors such as asset class, investment strategy and geographical region.With over 200 ETFs eligible to apply, the IA is now inviting formal applications from ETF providers for their funds to be classified into the sectors. Consistent with the current approach, only ETFs that are either UK domiciled, or are EU UCITs with HMRC reporting fund status will be included.
Commenting on the inclusion of ETFs in the sectors, Galina Dimitrova, Director of Investment and Capital Markets at the Investment Association says: “We want to ensure that the IA sectors reflect the full range of products the asset management industry has to offer savers around the world. ETFs are a growing part of this market and their inclusion in the sectors will enable consumers to compare across a wider variety of products.”
Commenting on the decision, Joe Parkin (pictured), Head of iShares UK sales, says: “ETFs have become a core part of portfolio construction and a ‘must-have’ tool for investors. We welcome the Investment Association’s decision to include ETFs within its sector classifications, acknowledging the increasingly important role that ETFs now play within the UK investment industry.”
More comment has come from Hector McNeil, co-founder of HANetf, who says: “Adding ETFs to broader investment sectors is an encouraging move from the IA that recognises how ETFs are becoming the product of choice for institutional and retail investors. ETFs are already winning significant market share from mutual funds- we are at a record AUM of USD840 billion in Europe and are closing in on USD1 trillion rapidly – but there is huge scope for further growth across UK and Europe.
“We have long argued that ETFs are simply a ‘better technology’ to deliver investment ideas and will benefit when fairly judged side-by-side with traditional fund products. ETFs are typically cheaper to own, have intra-day liquidity, trading flexibility and daily transparency. By making it easier to compare ETFs to traditional funds, investors will be better able to understand their options and judge the best value product for a given exposure.”
Christine Cantrell, ETF Sales Director, BMO Global Asset Management, commented on the matter too, saying: “We welcome the decision from the IA to include ETFs in its fund sectors. ETFs are well established in the industry and the majority of investors are now considering them in their portfolios, however we believe that they should be equally considered against open ended funds by all users of IA data, from wealth managers to research firms and the end client. The inclusion of ETFs in the IA’s sectors is a tick in the box to ensure this happens.
“It is evident that some rules-based methodologies followed by ETFs can consistently deliver the required outcomes for investors and now the data will be more accessible to compare ETFs to active funds with similar objectives, providing greater transparency. This is particularly relevant for investors looking for solutions to meet objectives such as income or a quality bias, but who have typically only looked at active managers to achieve those. Similarly, where ETFs and index tracker funds have the same benchmarks, it will be easier to compare them based on cost, tracking and consistency. From a cost comparison perspective, investors will also be able to discern which fund managers can avoid the fee drag on their long-term performance compared to ETFs which aim to minimise costs.”
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