Russell to educate on value of ETFs

Amanda Skelly

More education on the value of exchange-traded funds (ETFs) should lead to an increased uptake among Australian institutional investors, according to Russell Investments.

A slower uptake in Australia compared to Europe may also be partially due to a lack of targeted products for institutional investors that provide a point of difference to the exposures they get through derivatives, according to Amanda Skelly, Russell’s director of product development for ETFs in Australia.

The benefit of ETFs came through the ability to gain quick and easy access to exposures where institutions may want to quickly overweight or underweight those exposures, Skelly said.

Futures and derivatives are often locked into a one or three-month contract, while ETFs can be traded instantly each day — and ETFs also have the benefit of the underlying dividends or franking credits she said.

“There’s a couple of ways institutions can use ETFs, either as a strategic buy and hold, or there’s a large tactical usage of ETFs and that’s of interest here in Australia. You may have some excess cash and just want to get exposure for a couple of weeks,” she said.

In Europe as much as 80 per cent of assets under managements is from institutional users, while in the US it is closer to a 50-50 split, Skelly said. In Australia the vast majority is on the retail side, suggesting there may be an untapped market for ETF providers here, she added.