“THE PLAYING FIELD IS GETTING BIGGER”-
MARKUS KAISER EXPLAINS HOW FUND MANAGERS USE ETFs
for Veritas SG. He outlines both the opportunities and the limitations of management using ETFs, and also discusses possible extensions to the product range
When did you start using ETFs for your funds-of-funds and to what extent do you use them?
We have been using ETFs continuously for five years in fund-of-funds management at VERITAS SG. ETFs now play a central role in the investment process for actively managed A2A funds-of-funds. Due to the steadily increasing product range for ETFs, they can comprise up to 40% of individual fund-of-funds portfolios.
Which ETFs do you use?
We prefer Blue ChipETFs, such as DAX®EXand DJ EUROSTOXX50SMEX, although sector and industry ETFs are considered when doing asset allocation. Due to ongoing development and expansion of the product range through specifically targeted new issues by ETF providers, the playing field is gradually getting bigger.
What are the greatest strengths of ETFs in comparison with other financial instruments?
Active fund-of-funds management, where asset allocation plays a key role, requires flexibility. ETF sprovide continual and transparent price quotation. This means that positions can be expanded or reduced flexibly in the short term. This is a significant advantage over the fixed-order acceptance deadlines found in over-the-counter fund transactions.
How important is the transparency of ETFs?
When selecting an ETF the fund-of-funds manager gets exactly what the fund states. Nothing more, nothing less. As a result, an index ETF is ideal for diversifying the risk of a fund portfolio.
If the index weighting is known, an indicative price for the ETF can even been calculated on a second-by-second basis.
What are the weaknesses of ETFs?
An index-oriented ETF does not attempt to outperform its benchmark index. Because of this, it is in a sense inferior to an actively managed fund, at least as far as its intention is concerned. For example actively managed funds could reduce their level of investment substantially during slumps in order to minimise the price declines, although in practice hardly anye quity fund managers makeuse of this option. Consequently, investors should pursue the objective of outperformance using other methods.
Actively managed asset management, based on a fund-of-funds, for example, issuitable for this purpose.
What are the most important criteria for a good ETF?
A fund-of-funds manager identifies a good ETF primarily because it possesses a well-defined underlying(index). Management fees that are lower than those for actively managed funds. (continua)
Fonte: ETFWorld
