Hidden risk in ETFs revealed
No organisation publishes sales figures for ETFs in the UK, meaning there is a lack of transparency around these increasingly popular products.
The lack of publicly available information on the sales of exchange traded funds (ETFs) in the UK is putting investors in these products at a serious disadvantage, according to Tim Cockerill, head of collectives research at Rowan Dartington.
The Investment Management Association (IMA) publishes monthly statistics on sales of funds to retail investors and institutions. However, there are no equivalent figures available for ETFs, which Cockerill (pictured)
thinks harms investors’ decision making.
"You really need a central trade body like the IMA to look at this," he said. "I have no doubt that the providers have that sort of information."
"Is there a different type of investor buying ETFs? Do the flows into certain sectors show the same patterns or are they different? We can’t know."
"If ETFs are being bought mainly by institutions you may even see that they are doing something very different from retail investors with their money. It may even be that an institution is selling a fixed income product, for example, while putting its own money elsewhere."
ETFs are advertised as a low-cost method of gaining access to markets. Many expect the Retail Distribution Review (RDR) to accelerate the take-up of the products, as investors who are unwilling to pay higher fees for advice look to lower their costs.
Adrian Lowcock, senior adviser at Bestinvest, says that he is seeing a growing interest from retail investors, even though the industry is very underdeveloped and information is hard to come by.
"In the UK this is still an industry in its infancy," he said. "If you go to a stockbroker and try to find an ETF it’s hard to even be sure you’ve got the right one, as they basically just give you a list of names."
"The problem is they’re so easy to create, it only takes 20 minutes or so once you have an idea."
"The key thing is that with so much money going into them there’s the risk of the collapse of one provider or of a mis-selling scandal."
BlackRock – which provides ETFs under the iShares brand – publishes a large amount of information to the public and was happy to provide FE Trustnet
with additional data for this article.
Its monthly figures show the amount of money flowing into ETFs listed in Europe, but don’t provide a breakdown for the UK. They also fail to show any analysis of retail and institutional investors.
Similar data to BlackRock’s is available from other private companies, but investors and analysts who want to track where other market participants are putting their money have no organisation like the IMA to turn to for further information.
According to figures provided to FE Trustnet
by BlackRock, there is currently $110.3bn (£70.27bn) invested in UK-listed ETFs, with net inflows of €1.551bn (£0.99bn) into the products in July.
This is almost equivalent to twice the total sales of all UK-domiciled unit trusts and OEICs in June, underlining the popularity of these products.
Sales of ETFs and funds in 2012
Source: BlackRock – ETP Research, Bloomberg / IMA
||Net flows into UK-listed ETPs (£m)
||Net sales of UK domiciled Unit Trust/OIECs (£m)
BlackRock’s figures also show that whereas unit trusts and OEICs saw net outflows in May this year, ETFs have experienced consistent inflows.
Lowcock added: "We rate a few, in particular some iShares products. The problem our analysts have found when researching them is they are very complicated and you need a lot of information to understand them."
In July, Standard Life global thematic strategist Frances Hudson told FE Trustnet she
believed that retail investors who hold the products were inadequately informed about them.