The importance of transparency in ETF investment

Deborah Fuhr Hi, this is Deborah Fuhr, managing partner of ETFGI. This is ETF TV – a platform for insights on the use of trading and product development trends in ETFs. Today, Shaun Baskett, director of CBOE Index Sales, will be sharing his thoughts with us.

Dan Barnes Shaun, at the event today, what do you think the big themes have been?

Shaun Baskett I think we’ve seen very interesting themes on regulation, which is obviously very important for the industry, also on trade transparency, which is coming through. And we’re trying to look to see how we can make the trades that go on the exchange more available to the end user and to the retail users, so they can see that volume happening and they can see how liquid an ETF is.

Dan Barnes Very good. In the battle between active management and passive management at the moment, how do you think it’s playing out?

Shaun Baskett I think there’s room for both, and I think the ETFs are probably getting ahead in the race, certainly building up momentum, but there’s always a space for different ways of managing money. And I think that is always going to be the case.

Dan Barnes Of course. Do you think to an extent there have been active managers who have been tracking the index anyway, so perhaps-

Shaun Baskett there are potentially, there’s accusations of that. I can’t really say, I don’t know enough about it to sort of single one out, or single a couple out. But index tracking, the thing about that, if you’re charging for active, you should be active asset rather than being a ‘benchmark hugger,’ I think they call them in the market today.

Dan Barnes Absolutely. What have you thought about the regulatory topics today? What stood out for you?

Shaun Baskett What stood out for me was the openness of the regulator. He basically spoke today about his challenges, about the fact that he is someone who puts the laws and the regulations in place after they’ve all been decided and left to him. So I certainly learned a little bit about not quite walking a mile in his shoes, but seeing how he has to walk in his shoes, I suppose is the best way of putting it.

Dan Barnes Quite, great. And what do you think the biggest risks are in the exchange-traded product market at the moment?

Shaun Baskett the exchange-traded product market has grown exponentially. We’ve gone into the billions and now we’re into the trillions in terms of assets under management. And the issues I have and the potential issues I see are where ETFs, which are based on an index, are investing in underlying securities that are not liquid, and lack of liquidity, you can get caught out. It’s the old Warren Buffett saying is, ‘when the tide goes out, you see who’s not wearing swimming trunks’-type thing. And that work needs to be done beforehand to protect the end investor to make sure that when you are investing in a theme and that thematic is something that’s interesting, and you believe you can outperform a market by having that in your portfolio, you need to be sure that when things move and if a downturn happens, that you’re able to get out of that security and that ETF is something that you can buy and sell when you need to.

Dan Barnes That’s fantastic. Shaun, thank you very much.

Shaun Baskett My pleasure. Thank you.

Deborah Fuhr Thank you for watching ETF TV. To view other shows, please go to ETFTV.NET and follow us on LinkedIn and Twitter. Thank you.

Published on August 30, 2019