Investors are seeing a drag on active manager performance when compared to passive strategies and that’s reflected in recent outflow numbers, David Abner, Head of Europe at WisdomTree, says.

Mr Abner, if we're talking about Exchange Traded Funds, we can’t avoid discussing smart beta. What is all the commotion about?

In this environment of low/negative interest rates – especially in Switzerland where bond yields have turned negative – investors are looking beyond traditional product to capture yields.

They’re seeing a drag on active manager performance when compared to passive strategies and that’s reflected in recent outflow numbers. Exchange Traded Funds (ETFs) are structured in a way that are more transparent and cost effective and investors are waking up to this fact.

«We want to simplify things for our clients»

Then I think the choice is between the standard passive market cap weighted product or ‘smart beta’, an alternative weighted strategy which has the potentional to outperform these market cap weighted indices. There’s a spectrum of how complex the strategy can be, but the bottom line is that clients want an approach that outperforms in the long run.

And your smart beta indices – where would they fall in the «spectrum»?

It’s hard to make a sweeping generalisation but if we were to compare them to some other smart beta approaches, ours are relatively straightforward.

At WisdomTree we want to simplify things for our clients, not overengineer our products. I have personally spent the last decade educating the financial community about ETFs and ensuring that they are comfortable with all different aspects of ETFs to ensure the best investment experience possible.

«Back in 2006, we listed the first ETFs on the New York Stock Exchange»

Importantly – and a point of differentiation – is that most of our ETFs are based on indices that we’ve created so we have a greater deal of knowledge and control of our methodologies and index components than some ETF issuers have.

You mentioned self-indexing as a point of differentiation. As a smaller player, you will clearly need to demonstrate where you can add value in this already crowded market.

Our philosophy is to really bring value to clients by being the first to do something or to enhance an existing methodology. The foundation of this firm is built on our intellectual property: Back in 2006, we listed the first ETFs on the NYSE – the first ever ETFs which gave investors an alternative to market cap.

«We have live data, rather than backtested data for many of our indices»

We believe that fundamentals, specifically weighting by income and dividends, is the best way generate higher returns with lower volatility. One major point of differentiation is that we have live data, rather than backtested data for many of our indices. We can now see that four of our five dividend weighted indices beat their comparable broad-based cap-weighted index over the last 10 years.

What are the differences you’re seeing between the U.S. ETF and European ETF market?

Well, clearly size – both in terms of assets and turnover. In Europe one of the challenges I see is the fragmentation: there are a number of issuers across many countries listing products on different exchanges and in different currencies. That same ETF can then be cross listed several times in different currencies and there is no consolidated tape.

What are your plans for Switzerland?

We’ve listed our first ETFs on SIX Swiss Exchange over a year ago here and with some of most sophisticated clients in the world and the wealth manager centre of Europe, Switzerland is of course a key part of our growth plans.

«Swiss investors are keen to hedge currency risk»

One of our areas that we think is valuable for the Swiss market is currency hedging. As investors in Switzerland hold assets in multiple currencies we know they are keen to hedge currency risk in both euro and franc whilst also offering funds that have a dollar exposure – reflecting the diversified and international nature of the Swiss clients.

Earlier this year specialist ETF issuer, WisdomTree appointed David Abner as the new head of its European operations. Formerly the Head of Capital Markets at WisdomTree in the U.S. He is a veteran of the ETF industry, having traded the indexed products since 1999 at large investment banks and is the author of «The ETF Handbook» and «The Visual Guide to ETFs».