Barclays Global Investors caught the attention of the market last week with its hiring of Deborah Fuhr, arguably the most well-known among analysts tracking global exchange- traded funds markets.

The former Morgan Stanley strategist announced September 7 that she's moving from one of the world's largest brokerages to Barclays Global Investors, the ETF industry's biggest player. (See related story.)

Fuhr started her new job this week as BGI's global head of ETFs research and implementation strategy. Even though she has been busy  assembling a new staff and preparing for her new position, Fuhr took time out from her busy schedule recently to talk to IndexUniverse.com's Eric Rosenbaum about the move to BGI and its implications.

IndexUniverse.com (IU): Will you be moving to BGI's headquarters in San Francisco for your new position or remain in London?

Deborah Fuhr (Fuhr): Being based in Europe is much better. This is a position where my team will need to be able to cover the global ETF market. Just in terms of time zones, London is a better base, allowing better communications with Europe, Asia, the Middle East and Latin America, for example. There are other reasons, too, tied to the nature of the exchange-traded product market in countries outside the U.S.

For example, outside the U.S., private placement exemptions allow greater flexibility for investors to use a wider array of exchange-traded products, and we will be covering these products.

At some point, as the research team grows, it might make sense to have members based regionally, but at this point, I can only tell you that we expect to start with a team of three, including myself, based in London.

At Morgan Stanley, clients asking our advice on how to implement new exposures using ETFs took up a good deal of our team's time, so we will see how that work develops.

IU: You mention your coverage territory being global. How do you view the world of ETFs? Is there more convergence or divergence between various markets at this stage of the industry's evolution?

Fuhr: Clearly, what's happened with the industry on a global level is that the ETF providers are now able to create products that are similar across multiple markets, but that are still often quite different from a regulatory and tax perspective. They're also differing levels of counterparty exposure as well.

The bottom line is that the need for clarity and education is higher now. Before, the providers tended to follow the same structure with products, and when we were talking about an ETF, we knew it really was an ETF. That's not the case anymore. Now people say "ETF," but apply it to products that aren't funds and that aren't transparent, that don't feature in-kind creation and  redemptions or have multiple broker dealers trading, and that are not tracking indexes or offering real-time indicative NAVs.

IU: Will you set out to tackle this confusion directly through your new position?

Fuhr: My new position is an opportunity to cut through all this confusion and try to begin a discussion about creating a set of understandable definitions to help advisors and investors understand exchange-traded products. In the U.S., many people still lump together closed-end funds, HLDRs, exchange-traded notes, and ETFs without understanding the tax and regulatory implications. Just take the closed-end fund discount and premium dynamics and the fact that closed-end funds do not track indexes, as one example.

I see a real need to develop a set of industry standards. There are still many investors coming into the ETF market specifically as a way to explore alternative asset classes and to use new benchmarks. BGI is a good platform from which to begin a dialogue with all the stakeholders in this exciting asset class, managers, exchanges, market makers and investors

This is a big change for me. Being at BGI means that what I produce can be shared with many brokers, and other financial services firms, whereas previously the nature of my work was more limited by the proprietary brokerage firm model.

IU: Is there any investor base, in particular, for which you see the greatest need for industry standards and cutting through all the product proliferation and clutter?

Fuhr: In the U.S., retail investors have continued to embrace ETFs. When you move outside the U.S., though, ETFs are primarily an institutional product, with a few exceptions—such as South Africa, where there are certain exemptions to exchange control policies which allow retail investors to access foreign index products. Generally, the rest of world is much more institutional in its use of exchange-traded products. So the institutional client outside the U.S. is a very important user group for ETFs.

If you look at July-ended data, global assets in ETFs are down slightly year-to-date, but European-domiciled ETF assets are up 24.4%. And if you compare asset inflows to mutual funds in Europe versus inflows to ETFs, the ETFs had positive inflows, whereas mutual funds had significant outflows. This goes back to the institutional investors in Europe embracing the exchange-traded fund structure, and that will continue.

The search for low-cost beta products to implement tactical allocation makes ETFs an appealing product.

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