 "ETFs provide low-cost access to beta exposure across all assets classes: John Davies")
ETFs allow retail investors to gain access to markets and strategies that were historically only available to institutional investors, says John Davies, Vice-President, Global Exchange Traded Products, S&P Dow Jones Indices:
ETFs are not as popular in India as they are in developed markets. What's your view on this?
The US ETF market has been successful since the launch of the Standard & Poor's Depository Receipt ETF in 1993. In comparison, ETFs have been in existence in India for over 14 years. They have historically been dominated by gold-related products, with little appetite for equity-based products. Whilst the longer term growth rate has been sluggish by global standards, there has been a marked change in 2014. As on end-July, the year-to-date growth rate was 49.7 per cent. A major reason for this was the PSU initiative and the increased interest in equity ETFs as a result of the post-election positive economic outlook. An analysis by S&P Dow Jones across various markets and asset classes shows that, in general, active managers find it difficult to beat their corresponding benchmarks over various time periods. The challenge for investors is to find the right allocation between active and passive. That's where ETFs have a role to play as they provide low-cost access to beta exposure across all assets classes.
If you look at the split of ETFs by assets, in India, commodities lead the way with 57 per cent of assets, followed by equities at 40 per cent and only a single fixed income product accounting for the remaining four per cent. One of the key points to their adoption in developed markets has been the on-going education process conducted by the ETF providers, exchanges and the index providers. Market participants have taken concerted efforts to educate investors, institutional and retail, as to the advantages of these investment tools.
ETFs are not as popular in India as they are in developed markets. What's your view on this?
The US ETF market has been successful since the launch of the Standard & Poor's Depository Receipt ETF in 1993. In comparison, ETFs have been in existence in India for over 14 years. They have historically been dominated by gold-related products, with little appetite for equity-based products. Whilst the longer term growth rate has been sluggish by global standards, there has been a marked change in 2014. As on end-July, the year-to-date growth rate was 49.7 per cent. A major reason for this was the PSU initiative and the increased interest in equity ETFs as a result of the post-election positive economic outlook. An analysis by S&P Dow Jones across various markets and asset classes shows that, in general, active managers find it difficult to beat their corresponding benchmarks over various time periods. The challenge for investors is to find the right allocation between active and passive. That's where ETFs have a role to play as they provide low-cost access to beta exposure across all assets classes.
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How can ETFs be popularised among retail investors in India?
If you look at the split of ETFs by assets, in India, commodities lead the way with 57 per cent of assets, followed by equities at 40 per cent and only a single fixed income product accounting for the remaining four per cent. One of the key points to their adoption in developed markets has been the on-going education process conducted by the ETF providers, exchanges and the index providers. Market participants have taken concerted efforts to educate investors, institutional and retail, as to the advantages of these investment tools.