ETFs with Hortense Bioy, Morningstar Manager Research

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  • 03 mins 52 secs
ETFs are a growing and thriving industry. Hortense Bioy discusses the role of Morningstar in the ETF ecosystem, the differences between the American and European ETF market, and the focus on ESG.


PRESENTER: ETFs are a growing and thriving industry. So with me today to discuss is Hortense Bioy, Director of Passive Fund Research in European for Morningstar. So Hortense, it’s good to have you with us today.

HORTENSE BIOY: It’s good to be here, thank you.

PRESENTER: So let’s start with Morningstar’s role in ETFs, talk me through it.

HORTENSE BIOY: So ETFs have been a key area of research for Morningstar over the past decade. Now we have 12 analysts who cover ETFs, so dedicated to ETF research, who provide independent research on ETFs and rate ETFs. As you know ETFs have seen explosive growth in recent years, assets have more than doubled over the past five years, and there has been a proliferation of products. So if you look at the UK there are now over 2,500 ETFs available for sale in the UK. There has also been more complexity around the strategies that are being offered. So investors need help. There is also a lot of misunderstanding about ETFs, a lot of people don’t understand how they trade on the exchange, the liquidity, how they replicate the underlying indices. So basically our mission at Morningstar is to bring a bit of clarity on that space, and to educate investors and help them make better informed decisions, and also help them with the fund selection process.

PRESENTER: So this year 2018 it’s the 25th anniversary of the first ETF in the United States and the 18th anniversary of the first ETF in Europe, so how are these two markets different and how are they changing?

HORTENSE BIOY: So the European ETF market is at a different stage of its development when you compare it to the US market. It is coming of age, as you said it’s celebrating this year its 18th anniversary. But when you look at the structure of the European ETF market, it is still quite immature, especially when you compare it to the US. Retail ETF usage is still very low, retail investors represent only 10% of total ETF usage in Europe; maybe in the UK it’s 15%. But the rest is institutional. So the European ETF market, it’s still a very institutional market when you compare it to the US. The US is 50/50 and that’s the split between retail and institutional. But this is changing and we’re seeing more retail investors adopting the product. We’re going to see an acceleration of retail ETF adoption going forward, especially with MiFID II, and the rise of digital solutions. In the UK as well we’re seeing more and more platforms looking into facilitating the trading of ETFs. So all this is all good for investors, as they’re going to be able to lower the cost of their portfolios.

PRESENTER: So finally what’s Morningstar focusing off in the ETF market moving forwards?

HORTENSE BIOY: So we’re going to continue to expand our ETF coverage universe. At the moment we rate close to 200 ETFs, including smart beta funds and ESG funds. We’re seeing more and more ESG focused ETFs being launched, and this is definitely something we’re going to focus on this year. So watch this space.

PRESENTER: Super, Hortense, thank you.

HORTENSE BIOY: You’re welcome.