SPY@20: Fuhr Peeks At The Future Of ETFs
February 01, 2013
Page 1 of 4
Editor’s Note: This interview is the final installment of a “SPY@20” series of pieces IndexUniverse has rolled out to commemorate the 20th anniversary of the first U.S.-listed ETF. The package includes a number of interviews with industry sources as well as blogs from IndexUniverse senior executives. The stories that have run so far include the following:
If anyone has the perspective to take measure of what the SPDR S&P 500 ETF (NYSEArca: SPY) means to the world of money management as it celebrates its 20th anniversary, it’s Deborah Fuhr, the independent ETF analyst who now runs her own firm, London-based ETFGI LLP.
When IndexUniverse.com Managing Editor Olly Ludwig caught up with Fuhr recently, she said SPY is still resonating with investors and that the now-$125 billion fund is likely to remain a big asset-gatherer as the ETF continues to expand its reach.
Gazing at the future, Fuhr said that on the one hand, funds like SPY with well-known benchmarks like the S&P 500 are likely to remain important to investors, but so too is a whole new trend in money management: the so-called ETF strategist who serves up alpha-seeking strategies using relatively cheap, index-based ETFs.
IU.com: Any general thoughts about SPY’s 20th birthday?
Fuhr: It is a product that continues to win people over, and it was challenging in the early days trying to explain to people what ETFs were and why to use them. But the SPDR specifically is a product that has really stood the test of time in a lot of ways because for almost all of the 20 years, it’s been the largest ETF.
It’s been the most actively traded most of the time also and, most years, has also received the largest net new asset flows. So, I think to be able to stand the test of time based on the dimension of tradability, the ability to go short—doing what it says it’s going to do, and being very cost efficient, is a pretty impressive testament to the product.
IU.com: What do you make of it being a unit investment trust?
Fuhr: Well, that’s interesting too, because many people felt that that structure was one that didn’t afford all of the flexibilities of the open-end structure. Coming from a global perspective where there has been a lot of concern about securities lending and using derivatives, one of the things you find is people actually are calling for a back-to-basics approach. Many investors would like to see some products where they wouldn’t have securities lending happening, wouldn’t see derivatives being used. So, the structure of the SPDR and other UITs forces them to do these things that are kind of, as many would call it, back to basics.
IU.com: So to be perfectly clear, the UIT structure prohibits securities lending; prohibits use of derivatives and it requires full replication?
Fuhr: Exactly. It’s not ideal for all benchmark exposures, but it is clearly a model that many investors today are actually asking for. We’re showing that, end of the year, SPY had $123 billion U.S. dollars. It traded about $20.6 billion every day in the month of December, and took in $15.8 billion U.S. dollars of net new assets, which was significantly higher than the next-largest ETF in terms of net new asset flows. So, based on all those dimensions, it has succeeded in being a very successful ETF, and the next product in term of asset flows was VWO [Vanguard FTSE Emerging Markets Index ETF (NYSEArca: VWO)], taking in $10.6 billion.
Paul and Ugo discuss the rumors surrounding the SEC's new approach to passive ETFs and whether investors have learned any lessons from the recent moves in gold.See All