HOLLYWOOD, Fla.--(BUSINESS WIRE)--Vanguard Chief Investment Officer Gus Sauter challenged the exchange-traded fund (ETF) industry to be responsible in developing new products and called for greater efforts to educate investors about ETFs.
During a speech at the IndexUniverse “Inside ETFs” conference, Mr. Sauter said the ETF industry has been characterized by “growth and innovation.” From 2000 to 2010, assets in ETFs grew by about 30% per year. By comparison, traditional mutual funds grew by about 5% annually over the same time. Globally, ETFs now hold roughly $1.5 trillion in investor assets.
Mr. Sauter said that the rapid growth of ETFs has been largely good news for investors, providing them with greater access to diversified, low-cost index funds, as well as for advisors, providing them with simple, flexible investment tools for building well-constructed portfolios for their clients.
However, Mr. Sauter noted that ETFs have been blamed for a wide range of problems, from creating the May 2010 Flash Crash to contributing to ongoing market volatility. In rebutting the criticism, Mr. Sauter compared the volatility of the U.S. stock market to that of the German stock market. “ETFs are much more dominant in the U.S. market than in Germany, but market volatility in each has been the same—exactly the same,” he said.
Mr. Sauter encouraged ETF providers and investment advisors to play the role of an educator when it comes to ETFs. “I believe that as providers of ETFs and as distributors of ETFs, we have a responsibility to make sure the investing public is as informed about ETFs as it can be,” he said. “Everyone in this room has an opportunity to help investors reach their goals. It starts with ETFs 101.”
Advisor’s Alpha
Mr. Sauter also discussed the concept of “advisor’s alpha.” Traditionally, the value proposition for many advisors has been based on their investment acumen and prospects for delivering higher returns than those of the markets. But, Mr. Sauter said, no matter how skilled the advisor, the path to better investment results may not lie with the ability to pick investments or strategies. Instead, advisors should consider a new value proposition based on alternative skills and expertise. That is, they have a greater probability of adding value, or alpha, through relationship-oriented services, such as providing cogent wealth management and financial planning strategies, discipline, and guidance, than by attempting to outperform the market.
“The advice perspective and planning that today’s advisor provides is far more valuable than a buy, sell, or hold call,” Mr. Sauter said.
Vanguard has published a white paper on the subject, Advisor’s alpha, which is available at the newly redesigned advisors.vanguard.com website. (https://advisors.vanguard.com/VGApp/iip/site/advisor/researchcommentary/research/article/IWE_InvResAlpha).
Vanguard: An ETF Leader
Vanguard manages nearly $171 billion in ETF assets, an increase of 15.3% from year-end 2010. For the second consecutive year, Vanguard led the industry in net cash flow with $36.2 billion. In 2011, about $1 in every $3 invested in an ETF was invested in a Vanguard ETF (Sources: Vanguard, Simfund, and Bloomberg).Vanguard offers 64 ETFs covering the broad U.S. stock and bond markets, as well as broad international stock markets.
About Vanguard
Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world’s largest investment management companies and a leading provider of company-sponsored retirement plan services. Vanguard manages more than $1.65 trillion in U.S. mutual fund assets, and offers more than 170 funds to U.S. investors and more than 70 additional funds in non-U.S. markets.
All asset figures are as of December 31, 2011.
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