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Williams de Broe predicts more use of ETFs to cut costs

Multi-manager boutique Williams de Broe is predicting an increase in funds of funds that invest in exchange-traded funds as pressure increases on multi-managers to rein in costs.

The company invests in ETFs within its Assetmaster fund of funds range because it says they allow real-time trading and have low total expense ratios relative to actively managed funds.

It says these factors are particularly useful when trading in and out of more exotic markets over the short term as part of a core and satellite investment approach.

Investment director and fund manager Laurence Boyle expects more funds of funds to hold between 20 and 30 per cent of their portfolios in ETFs to trade more efficiently, keep down costs and manage liquidity.

He says: “Many fund of fund managers buy and sell managers the way that stocks are bought and sold but some actively managed funds are glorified trackers. It is more expensive to own actively managed funds and you never know what the cost will be to get in and out of them.

“Why go for active management in sexy asset classes like Russia if you just want exposure to the most liquid market-cap stocks? Do you really want to invest in an illiquid active manager in those markets?

“With an ETF, we can have access to the market and can be traded out with no charges through our stockbroking arm. If we buy and sell a unit trust, by the time we have sold it we have just missed out on a 200-point rally.”

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