ETFs make compelling proposition for long-term investors, says Evercore Pan-Asset

Dec 3rd, 2012 | By | Category: ETF and Index News

Exchange-traded funds (ETFs) are now a compelling proposition for long-term investors in the UK such as pension fund trustees, being just as cost effective as traditional index-tracking funds while offering better liquidity and a higher degree of transparency. That was the finding of a comprehensive research study conducted by London-based asset allocation specialists Evercore Pan-Asset.

ETFs make compelling proposition for long-term investors, says Evercore Pan-Asset

John Redwood, chairman of the investment committee at Evercore Pan-Asset.

Evercore Pan-Asset’s fund research team studied the performance and costs of 223 European ETFs and the three leading ranges of index-tracking funds used by occupational pension funds in the UK.

They discovered that ETFs were among the cheapest passive funds in terms of their tracking difference and trading costs; that the cheapest diversified portfolio of passive funds contained 58% ETFs and 40% index-tracking funds, and would have cost just 0.1% in 2011; and that almost all passive funds performed better than their Total Expense Ratio (TER) implied in 2011.

Evercore Pan-Asset discovered a significant disparity between the cost to investors of passive funds from different providers. A portfolio of funds managed by one leading index-tracking fund provider would have cost 0.59% compared with 0.24% for a portfolio of ETFs. And when taking account of the high degree of liquidity, transparency and the significantly wider range of asset classes available through ETFs, Evercore Pan-Asset’s investment committee had no doubt about the best way of accessing markets.

“We have always considered ETFs a great way of accessing markets, from UK Government bonds to Asian equities or commodities,” said John Redwood, chairman of the investment committee at Evercore Pan-Asset. “But it is reassuring that ETFs are competitive on cost even compared with the large-scale index-tracking funds historically considered to be the best passive option for pension fund trustees. I hope our research can help trustees and their advisers to select the best ways of investing passively.”

Evercore Pan-Asset’s investment committee widely uses passive funds to implement their popular dynamic, diversified growth strategies, allowing clients to benefit from a portfolio that costs two-thirds that of most competitor diversified growth funds. The firm prefers ETFs because they are typically the best and lowest cost trackers of indices, can be traded almost instantly and offer the widest range of global equity, bond and alternative asset classes.

“In the five years we have been researching them, the cost of ETFs has come down fast, thanks to a vibrant, competitive market,” said Christopher Aldous, CEO of Evercore Pan-Asset. “The important thing for pension trustees is to consider the real cost of owning passive funds, not just the published TER which can be quite different.”

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