Deborah Fuhr is busily setting up a London-based consultancy to fill a need for information on the global ETF industry among institutional investors and financial advisers, but confirms she is still open to job offers, including from Asia.
Speaking by phone from an arctic-cold London, the independent ETF strategist discusses the furore over synthetic products, what it will take for Asia to spur greater retail participation in ETFs and whether we might expect to see more delistings, such as those by Lyxor.
Further, she addresses what she admits was an unexpected snub from Bank of America Merrill Lynch and outlines her professional plans for the future, which could involve relocating to Asia.
Fuhr believes public statements blaming exchange-traded funds for everything from the flash crash in May 2010 to an increase in correlation and volatility have fostered a misunderstanding of ETFs.
“There are a lot of pundits that like to blame ETFs for anything and everything,” she tells AsianInvestor. “Unfortunately those types of statements cause the regulators and others to step back to make sure they understand if there is validity to what is being said.
“When statements are made that sound extreme, they get picked up by the press. But you never see the follow-up article that says the flash crash was not caused by ETFs, but by a trade in futures. The follow-ups do not get picked up as broadly as the accusations.”
Such misperceptions partly explain why Fuhr is intent on establishing a consultancy to provide a better understanding of what she views as value-adding, transparent and cost-efficient products.
There is also a desire to pick up where she left off. After all, she resigned last July (with two colleagues) as head of ETF research and implementation strategy at BlackRock to join BoA Merrill in what turned out to be a still-born move.
She was scheduled to join as head of global delta one strategy, but a reorganisation at BoA Merrill saw the bank scrap the role she had signed up for before she even set foot in the door.
“It was unexpected,” she admits. “I was expecting to work at Merrill Lynch as head of global delta one strategy, but that did not happen.”
Nevertheless, the continuing need for ETF research has encouraged her to set up a research-based consultancy. But she admits that covering around 5,000 products, 10,000 listings and 191 managers is not something she can handle by herself.
“There will be some people joining me in due course,” she adds, declining to elaborate. (Shane Kelly, who worked alongside Fuhr at BlackRock previously, recently left BoA-Merrill).
“The need for a service on ETF products and understanding the market globally is clearly one I am hearing loud and clear from a lot of people, given that they miss what we were doing before [at BlackRock].
“Given the proliferation of products, people really need to understand the different structures, the assets, and where products are registered for sale as that has tax and regulatory implications.”
At the same time she admits that the right job offer would be hard to turn down. “I am committed to doing what I am doing, but if something came up down the road, never say never,” she says.
Asked if she would consider a move to Asia, she replies: ‘Definitely. I have loved going to Asia. I have done two-week bike trips in China and in Vietnam and I spend a lot of time in Tokyo. If there was a good opportunity, I would love to be able to spend time there.”
With regards to driving greater use of ETFs in Asia, she sees the challenge as largely an educational one, with investors put off by lower trading volumes. She estimates that the ratio of ETF use for institutional and retail investors in the US is about 50:50, compared with 80:20 in Europe and in Asia (with Australia a notable exception).
She blames the fact that financial advisers in Asia are unfamiliar with ETFs simply because they are not incentivised to sell them. There is some evidence that this may be changing in Singapore, if not in Hong Kong, as independent financial advisers increasingly shift to a fee-based advisory model as opposed to commission based.
However, she sees fund managers’ increasing use of ETFs as building blocks for tactical asset allocation as one way to get these products into the mainstream retail market.
“HSBC was one of the first to launch funds that use ETFs for tactical asset allocation,” Fuhr notes. “I do see that as a way to raise awareness of ETFs among financial advisers and direct retail investors who take the time to study what kind of products they buy.”
She notes that retail investors in Asia already use ETFs as a way to gain exposure to the A-share market. “China is looking at Hong Kong as a venue to bring out new RMB-based products and potentially ETFs. I think that would give impetus to get more investors and advisers into ETFs.”
Accordingly she expects fund managers in Hong Kong and mainland China increasingly to use ETFs as a vehicle to introduce new products and strategies.
“I think we will see Chinese managers able to offer Hong Kong-domiciled securities through an ETF on the mainland. Conversely I think we will see more mainland Chinese ETF products in Hong Kong, as well as renminbi-based ETFs.
When it comes to the recent controversy over synthetic products, Fuhr expects the calls for greater transparency and education to carry on, although she notes that the emphasis has shifted from ETFs more broadly to funds using synthetic replication and securities lending.
“The question is, do retail and institutional investors really understand what [ETF] they are using? I think that is being progressed in appropriate fashion now. The onus is on the end-investor to understand the different types of products. You can’t assume anything without doing your homework.”
Asked whether she expects to see more delistings of ETFs, she replies “not necessarily”, on the understanding that providers tend to be in it for the long haul.
“Lyxor has said it is going to focus more on the institutional marketplace,” she notes. “Others that feel they want to focus on both retail and institutional I think will stay in it and give it a longer term chance.”