ETFs Could Be Industry Disruptors Again: PWC

ETFs Could Be Industry Disruptors Again: PWC

Would you like to invest in the Nordic countries and don’t know how?

Rest easy, because the db X-trackers Concept Fund Solutions Plc DBXT MSCI Nordic UCITS ETF 1D (LON:XDN0), a recently launched ETF from Deutsche Asset & Wealth Management that tracks the MSCI Nordic Countries Index could be your investment vehicle of choice.

The above is just an example of how pervasive Exchange Traded Funds (ETFs) have become. You can find one for practically any kind of investment strategy or focus you can think of.

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ETFs: Security selection to asset allocation

ETFs have come a long way since 1993 when State Street launched the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). In fact, ETF/ETP assets are now tipping the scale at the $2.5T mark, says a PWC study, and could touch $5T in the next 3-5 years.

ETFs have matured and their sheer breadth and reach across geographies, markets, and asset classes have made them investors’ and advisors’ darlings.

“Offering convenient, cost effective, liquid, and diversified exposure to countless asset classes globally, ETFs are facilitating a shift from security selection to asset allocation,” say PWC.

The changing USP of ETFs

PWC makes the point that the USP of ETFs has metamorphosed over the years: “The facility of specific exposure is on the verge of taking over from low costs as the number one reason for using ETFs.” Remember that their low cost was one of the main reasons ETFs became, in PWC’s words, “effective disruptors of the status quo.”

In fact, ETFs are already giving mutual funds a run for their money. PWC points out that US equity focused ETFs have displaced mutual funds in that category, which experienced net outflows for five consecutive years.


Could active ETFs shake up the industry again?

An emerging trend in the industry – active ETFs – might well repeat history, say PWC.

“After a slow start, active ETFs are picking up steam and are likely to become major drivers of a wider range of uses and greater share of wallet across a more diverse client base,” says the PWC study.


The major portion of the $13.8B Active AUM is in fact accounted by $8.5B managed by PIMCO.

Active ETFs in new avatars

“Active ETF product offerings will only get more diverse in the coming months and years, encompassing a full range of government and corporate debt, credit quality from high yield to investment grade, and possibly geographic exposure from the developed markets to emerging markets if permitted by the SEC,” say PWC.

This may already be happening. In September, Paris-based Ossiam launched its innovative commodities ETF, the OSSIAM LUX OSSIAM RISK WGHT COMMO EXG ETF-USD (LON:CRWU).  The fund will provide investors with systematic long-only exposure to a diversified basket of 20 commodities futures contracts (excluding grains) with reduced volatility. It is the first risk-weighted ‘smart beta’ commodity ETF in the world. (A smart beta ETF goes beyond simple indexing and is based instead on strategies that may not be based on market cap weighting).

Innovation and a solutions-centric approach could be crucial for the introduction of new active ETF products, according to PWC. “Demonstrated success for active ETFs could open the flood gates for significant growth.”

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