Opto Sessions: Deborah Fuhr on the popularity of ETFs

Deborah Fuhr has been working with ETFs for decades. She is the founder and managing partner of ETFGI — an independent research and consultancy group that provides insights on the global ETF industry. Prior to launching the firm in 2012, she was head of ETF research and implementation at BlackRock and Barclays Global Investors. And before that, Fuhr was managing director and head of the investment strategy team at Morgan Stanley.

Fuhr says there are a number of reasons that ETFs have been seeing almost uninterrupted inflows in the past two decades.

“One would be that many investors — whether they're retail financial advisors, or professional institutional investors — have found that it is very challenging to find active mutual funds that are beating their benchmarks or delivering that alpha, as opposed to the market returns that people bought them expecting to receive,” she explains.

She says that “typically, seven out of 10 active funds are not beating their benchmark in a given year”, a percentage that increases when looking at shorter time frames. “Being able to overweight or underweight a country, sector or region allows you to potentially generate your own Alpha,” Fuhr explains.

This isn't the only reason ETFs are so popular, though. Fuhr says that the most innovative providers in the space are now allowing people to invest across themes such as ESG or 5G technologies far more quickly than other investment services providers.

Finally, it’s the benefits ETFs offer that Fuhr says have solidified their status.

“They are cost-efficient and they’re also adding diversification for many investors,” Fuhr said. “They’re simple products that allow all types of investors to gain access to a broad toolbox, and they really are the only democratic investment product that I’m aware of.”