Hector McNeil, co-CEO of HANetf, has said MiFID II and the industry's greater focus on transparency will drive further assets into passive products, although he highlighted active ETFs will be the main beneficiary.
Speaking to Investment Week following the launch of his new venture HANetf - the firm he set up with his former co-CEO from both Boost/WisdomTree Europe and ETF Securities Nik Bienkowski - McNeil said a key driver of flows from mutual funds to ETFs was regulation such as MiFID II and the increasing focus on fees.
MiFID II, which comes into effect on 3 January 2018, is designed to increase transparency across all assets classes and offer more protection to investors.
"MiFID II is the latest injection of steroids into the ETF business," McNeil said. "It is not the be all and end all but it is the next level of push."
Recently, a KPMG report suggested increasing levels of regulation could push wholesales investors more towards passive products as a result of greater scrutiny of underlying portfolio costs.
In addition, the rise of disruptive technologies and their impact on the industry will also funnel assets towards ETFs, McNeil said.
"The biggest driver [of assets] into ETFs is technology. Investors want all their ETFs in one place. To get access to this new customer base, firms will have to have a solution. Mutual funds are an analogue technology, whereas ETFs are digital.
"There is this move away from analogue to digital, so any asset manager whether they are active, smart-beta or passive will have to have ETFs within their offering."
However, McNeil said the largest pool of AUM would end up in active ETFs, as the passive ETF market has become saturated.
He said there was not a need for a huge number of FTSE 100 ETFs for example, but there were countless possibilities for asset managers to launch active ETFs.
"The reason for the growth in active ETFs is asset managers all believe they have the secret source of adding value, usually through an active strategy.
"An active ETF will be a great way to deliver those strategies to different investor groups and countries."
Furthermore, McNeil said fixed income, one of the biggest markets in terms of AUM, suited an active ETF structure more than a passive one.
"Active strategies are the way fixed income will be done in order to be successful because ultimately pure-beta strategies are not the best fit for fixed income."
He predicted the only asset classes to not end up in an ETF structure would be illiquid ones, such as physical property.
"The more we see the push for transparency, liquidity and lower fees, the more it will benefit ETFs," McNeil added.
Support for firms
McNeil and Bienkowski set up HANetf to provide asset managers, who want to enter the European ETF market with the "shovels and spades" needed, such as distribution, marketing and operations support.
"It is easy for firms to issue a fund; what is hard is gathering the assets," he said.
"What we have done with HANetf is provide all the shovels and spades for asset managers who want to enter the ETF business.
Firms have the IP and the strategies, but they need the distribution and this is where we are putting most of our time and effort. The core offering is Italy, Germany and the UK, which is where we will have dedicated sales teams."
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