Bluerating | November 2022

At first, they were little known and, later, dreaded. Today, they are very much appreciated or even cherished. We are talking about Exchange Traded Funds or ETFs, listed on Borsa Italiana since 2002 – the first were iShares by the giant BlackRock and Lyxors by Amundi.

ETF investing is among the reasons why the Italian Stock Exchange is currently one of the European landmarks for negotiation.

In addition to their significant growth in terms of quantity (they have reached almost 100 billion), in time ETFs have developed in terms of quality.

In fact, simple replications of indexes, countries and sectors have been gradually replaced by leveraged ETFs, active ETFs, thematic ETFs and ESG ETFs.

At first, financial advisors regarded ETF investing with suspicion, as the antithesis of active management and thus having low added value. Later, financial consultancy took an unexpected direction.

In the past, 3 financial advisors out of 4 used to select autonomously each fund they would then suggest to their clients; only 1 financial advisor out of 4 would adopt the investment solutions suggested by their bank/financial network. Today, the tables have turned.

The shift has been generated by at least three main factors. The first is regulations, which demand full transparency when it comes to costs and the demotion of asset managers.

The second factor is the increasing ability of ETFs to generate interesting performances, sometimes exceeding the so-called active funds, affected by higher management fees which put a strain on performance in times of zero rates. Thirdly, their consecration as ingredients of advanced consultancy and, to some extent, of fee-only models.

The advanced consultancy model has been adopted by many financial networks because of its potential for both clients and financial professionals.

Today, in Italy, there are over thirty ETF issuers, recently joined by the first Italian one.  Fineco Asset Management (FAM), an asset management company owned entirely by FinecoBank, has recently listed its first 11 ETFs on Borsa Italiana.

The group has thus become the first Italian issuer of ETFs – their strategy consists in investing on greater control over the supply chain and sharing with clients their advantages by means of low-cost investment solutions. The company has developed 6 stock ETFs and 5 bond ETFs: 8 of them have been categorized as article 8 products, that is they foster environmental and social sustainability, or a combination of the two.

Once regarded with suspicion and condescendence, today ETF investing represents an efficient alternative, available to financial advisor for balancing the portfolios of their clients. Still, one key aspect is the ability of financial advisors to act as leading interpreter of the plan of each client in terms of risk profile, goals, and time horizon.

Ultimately, ETFs are low-cost, yet efficient products, which do not take space away from competent financial professionals. Rather, they offer the opportunity to create added value for clients, who would be glad to recognize their value.

Nicola Ronchetti