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ETF: increasingly attractive indexed funds

14 February 2017

Also known as trackers, ETFs (Exchange Traded Funds) are market listed funds that track the performance of an index (market, interest rates, commodities, real estate, etc.). Low cost and practical, they are hugely popular with fund managers and are often included in life insurance policies.

 

"ETFs are really taking off worldwide because they offer many advantages," says Nicolas Blaizot, savings expert at BNP Paribas Cardif. "Quoted continuously and transparently, these financial products offer greater visibility than the portfolios run by fund managers, who are not obliged to reveal their composition on a day-to-day basis." Because all they do is track an index, they are a form of passive management (as opposed to traditional portfolios for which the manager chooses the portfolio assets bought and sold), and therefore attract lower management fees. The simplicity of ETFs also opens up the opportunity for developing robo-advisors (automated investment advice platforms): clients can login to a robotic system that advises on the alternative investment choices available. And in recent years, ETFs have performed at least as well as actively managed funds.

 

Asian potential

The BNP Paribas Cardif subsidiary in South Korea has been distributing ETFs since 2006: the majority are managed by the market leader Samsung Asset Management, and are integrated into the funds distributed by the company's lead partners in this country Shinhan Bank and KB Bank. "ETFs are seen as particularly appealing by clients aged 45 to 60, who are building savings pre-retirement," explains Raf Wouters, Transformation Manager at BNP Paribas Cardif in South Korea. It has to be said that the local context is very buoyant: the national pension fund is investing massively in these products, and the Korean regulator is facilitating their distribution. For the company, it is essential to support the growing appetite for ETFs worldwide.

 

Key numbers:

  • At global level, the volume of ETFs under management is forecast to double by 2020 to a total of $6,000 billion (source: Ernst & Young).
  • ETF growth year on year in Europe is running at 24% (source: PwC).
  • ETF management charges are modest, averaging just 0.3% per year (source: Le Monde).

 

As part of its savings business, BNP Paribas Cardif offers ETFs:

  • in France: most life insurance related funds include ETFs
  • in Luxembourg, Italy and Taiwan, individual investors can already invest in ETFs either directly or via funds
  • in South Korea, the local subsidiary of BNP Paribas Cardif is offering the opportunity to invest directly in ETFs via a very user-friendly app

 

Glossary:

  • ETF (Exchange Traded Fund): A market listed fund that tracks the performance of an index.
  • Index: The term used to express the variation of market prices over a reference period.