Exchange-traded funds are here to stay. That was the rather obvious message delivered by BGI iShares
Chief Lee Kranefuss
Tuesday morning to a room of nearly three dozen Wall Street-focused reporters gathered at the Four Seasons in midtown Manhattan. Kranefuss also provided some of his guesses as to where the ETF market will head next. Though ETFs' success and staying power seem obvious today, Kranefuss reminded the reporters that it was not so obvious when Barclays Global Investors
(BGI) created its iShares
family of funds in 1990.
| Lee Kranefuss |
"Think back to 2000, when we started the iShares
family," he asked the reporters, pointing out that at that time there was "very little" choice in the ETF market. "The largest family of indexes was nine funds. There were only 30 ETFs, and 17 of those were iShares."
Kranefuss' remarks were part of an "educate the press" breakfast session Barclays held for reporters covering the beat. Scribblers from Dow Jones
, The Wall Street Journal
and the Financial Times
were among the roughly two dozen reporters who attended the event. The speakers included Princeton Prof Burton Malkiel
and Morgan Stanley ETF analyst Paul Mazzilli
, as well as Kranefuss and Philippe El-Asmar
, the BGI executive overseeing the BGI ETNs products. Also in the audience was Michael Latham
, the BGI executive overseeing iShares
in the U.S.
| Burton G. Malkiel |
Prof. of Economics
Malkiel, the famed author of A Random Walk Down Wall Street
-- reporters each got a gratis copy of the just out ninth edition for showing up for breakfast -- and longtime Vanguard board member, delivered a ringing endorsement of ETFs:
"I am a fan of ETFs. I am a fan of index funds, so how am I not a fan of ETFs?" he said. Leveraging the tie-in, BGI called the seminar "A Random Walk through ETFs."
With his iShares
strategy, Kranefuss put BGI on a course to provide investors a "modern tool kit to build any strategy in a sophisticated way," but was faced with critics who wondered whether ETFs, an untested product structure, would prove to be a flash in the pan. Kranefuss and iShares
have put those fears to rest.
"Today there are 130 plus iShares. They have a 60 percent market share and $290 billion of assets [at the end of last month]," said Kranefuss. He added that iShares
claimed 15 percent of all fund flows last year, with about $50 billion in net flows, putting them behind only Capital Group's American Funds. He also acknowledged that their success is attracting competitors.
"Competition is good; it keeps everyone on their toes," quipped the leader of the iShares
That competition continues to drive the industry: Kranefuss expects that the future will bring a continued expansion of asset classes covered by ETFs and a continued evolution of product structures (Barclays has been an innovator with exchange-traded notes [ETNs] to build out its fixed income product line).
Fixed income is one area now seeing innovation. Kranefuss pointed out that while there are now 17 bond iShares
products, the family still lacks a product that tracks municipal bonds.
Another growth area will be commodity ETFs, he added. He noted that while there have been REIT funds from the beginning, it is only recently that the rest of the commodity markets have started to be covered.
Private equity and venture capital related products are also ones that Kranefuss sees on the horizon. "Whey not private equity? In the industry it is always a matter of when and not if," he pointed out.
Of course, the industry will have to figure out the technical challenges to rolling out ETFs based on such illiquid investments.
"We have not even figured out how to get to muni-bonds yet," Kranefuss conceded in a follow-up interview.
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