Issuers of exchange-traded funds are investing in resources and academic research in order to launch products that help investors incorporate environmental, social and governance factors in their allocations.
Michael Gruener, co-head of sales in Europe, Middle East and Africa at iShares, said on a panel at the Thomson Reuters Lipper Alpha Expert Forum today: “We are investing resources into ESG as ETFs move from the institutional to the retail market.”
Gruener added that although there is not yet a standard way to measure ESG elements, data providers have thousands of people carrying out research. “You can get an ESG score on any listed company,” he said.
Thomas Merz, head of ETFs Europe at UBS, said on the panel that index providers have hundreds of analysts analysing companies so they can also research and verify ESG data. He said: “There is no reason they cannot do the same research as an active manager.”
Mark Fitzgerald, European product manager at Vanguard, agreed that index providers have access to a lot of data from companies before including them in their index. He said: “We are spending more time on ESG and socially responsible investing, including a lot on academic research.”
ETFs/ETPs listed in Europe reached a new record of $567bn in assets under management at the end of the third quarter of this year. Net flows of $2.98bn in September marked the 25th consecutive month of net inflows, according to preliminary data from ETFGI’s September 2016 global ETF and ETP industry insights report.
Greuner said there have been predictions of ETF assets under management in Europe doubling within four years to reach $1 trillion. “We believe that is too conservative and there is plenty of room for growth,” he added.
Reasons for growth include the digitalization of asset management leading to more portfolios being constructed using ETFs and the possibility of shorting ETFs, such as value or high-yield.
Merz said that ETFs are a more convenient way for investors to trade many asset classes, such as bonds where the underlying market can be illiquid.
“In last 18 months to 2 years we have seen investors with very big asset pools using ETFs,” he added. “For example, central banks have been forced into buying equities, as asset class where they do not have expertise, and so they are using ETFs.”
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