Lack of comparison tools make ETFs a tough choice
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Any current viewer of commercial TV will be aware of the many and varied price comparison sites being promoted by anything from Meerkats to corpulent opera singers.
Despite whether you have a favoured advert or website, they all have an incredibly simple premise: they aggregate similar products together to allow the customer a meaningful comparison of the range of products on offer.
For those of us involved in promoting, selecting or advising on funds, comparison is something that we have been familiar with for many years. Admittedly, it started with a variety of magazines offering basic performance tables, was enhanced by the ill-fated CD ROM and transformed by the internet, but the premise has always been the same.
We have also been fortunate that our trade bodies have helped the process along by providing sectors to narrow the search down. These sectors are by no means perfect and have been widely criticised but they do provide a filter, crude perhaps, but a basic way of aggregating similar products together to allow a customer or an adviser a meaningful comparison.
None of the last couple of hundred words will come as a surprise to anyone, however it is worth remembering the things that we have always taken for granted when considering the current debate of the usefulness of ETFs as a tool in an adviser’s armoury. There are many thousand ETFs available to us all but there remains nowhere to make a meaningful comparison between them.
There is an increasing amount of evidence to suggest that the professional fund buyer, and I include the various multi-manager funds here, is using ETFs as a tool to execute their investment strategy, particularly in areas that cannot be accessed via a traditional equity or bond fund. These professionals spend their lives formulating an investment strategy and the most appropriate way to execute that strategy but most advisers don’t have the time or depth or resource to match these professional fund buyers. Why would they, it’s not their job?
In my own experience, I tried to find an ETF recently and I resorted to the great comparison site that is Google. I did eventually manage to find what I was looking for but finding anything to compare it to or even to find the features of the fund that I had found proved virtually impossible. Having bought the fund that I did, I have relatively little framework to assess whether my choice of fund is performing properly or indeed whether I would be better with something else.
ETFs have a place in the investment landscape but until the Meerkats, or a more traditional provider of fund data, finds a way of classifying the many thousands of funds on offer, wouldn’t we be better sticking with the classifications laid down by the IMA or the ABI and the funds within them?
Schroders UK head of marketing James Rainbow
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