Martijn Rozemuller, CEO of ThinkETFs, a small Dutch ETF provider that offers three multi-asset ETFs (offensive, neutral and defensive) alongside a range of single asset class trackers, believes retail investors will eventually find their way to multi-asset ETFs.
“Our multi-asset ETFs [the first of which was launched in December 2009] only account for some €25m of the €1.5bn of assets we have under administration, but flows have been picking up over the past two years,” he says.
ThinkETFs’ multi-asset ETFs charge a premium of 10 basis points over the other ETFs offered by the company, but Rozemuller doesn’t think the extra cost is a barrier for investors. “Investors could of course opt to buy separate ETFs instead and that would save them money, but it’s quite complicated to rebalance your portfolio each year if you want to keep the asset mix intact,” he says. “In practice, people find convenience more important than costs.”
With a total expense ratio of approximately 0.28% for the neutral profile (fees were reduced from 0.40% in September 2015), costs are still a lot lower than for actively managed multi-asset funds. See the graph below to see how well the retail version has done since 2010.
But what multi-asset ETFs can’t do is change the allocation of their assets to mitigate volatility or take advantage of changing valuations. When Expert Investor recently polled fund selectors on the question of what sort of multi-asset funds their clients want, the majority said it was the flexible kind that they like most.
Moreover, most investors buy multi-asset funds because they are aiming for a specific return, say cash plus something, and they expect a manager to be able to position the portfolio accordingly.
“ETFs don’t work that way,” says Campello. “They are just a beta investment.”
This doesn’t mean there is no market for multi-asset ETFs though. Active funds are likely to continue dominating the space for the foreseeable future, at least until more dynamic ‘smart’ multi-asset ETFs arrive at the scene.
But even the inflexible multi-asset ETFs of today will test the viability of some actively managed multi-asset fund managers, namely those with rather static portfolios: the closet trackers of the multi-asset world.
