Indices and Benchmarking - July 22, 2013

ETFs are designed to provide investors with market exposure, nothing more, nothing less - an interview with Valerie Baudson

In this month's interview, we talk to Valérie Baudson, Managing Director of ETFs and Indexing at Amundi, about levels of usage of ETFs, transparency and the UCITS ETF label, innovation in ETFs, the future of fixed-income ETFs, and active management of ETFs.

Valérie Baudson

Investors who participated in the 2012 edition of the annual European ETF Survey, which is part of the Amundi ETF research chair on "Core-Satellite and ETF Investment," indicated that their level of satisfaction with ETFs remained high and that most of them planned to increase their usage. Has this been borne out since the survey was conducted?

Valérie Baudson: The growth of the European ETF market in recent years, despite particularly tough market conditions, is proof that ETFs are valuable asset allocation tools and offer solutions to meet investors’ needs in terms of transparency, cost-efficiency, diversification and liquidity.

Without doubt, one of the reasons for their success is the clearly-stated objective that ETFs seek to replicate, in a single transaction, the performance of a benchmark index as closely as possible, whether the market trend is rising or falling.

Their ease of use, combined with their adaptability to different approaches to portfolio investing, should ensure that the popularity of ETFs is here to stay.

You mentioned, at the launch of this year’s survey, that the changes in investor perception regarding risks and transparency are significant developments for the industry. What is your view of the current regulatory framework in these areas, and specifically of the ETF guidelines from the European Securities and Markets Authority (ESMA)?

Valérie Baudson: As transparency has been a key pillar of Amundi ETF’s development strategy, we very much welcomed this debate and the new guidelines. These have had a positive impact on steering the ETF world towards improved transparency and a better understanding among investors of the advantages and risks of ETFs.

The debate has also highlighted the importance of differentiating between ETFs and other exchange-traded products (ETNs, ETPs, ETCs) which are not subject to the same strict regulatory guidelines, leading to a more educational approach from ETF providers.

We fully agree with the guidelines issued by ESMA and, in my view, the UCITS ETFs label will ensure excellent protection for investors by clearly differentiating these authorised funds from other types of exchange traded products. Consequently, we have renamed all our 100 ETFs to include the label UCITS ETF.

Demand for innovation is high in different asset categories, with 50% of respondents seeking exposure to new asset classes through ETFs, but there is also a demand for other use such as “hedging and risk management” with ETFs. What is Amundi ETF’s view on this?

Valérie Baudson: We value innovation at Amundi ETF, as demonstrated by the fact that one third of our products have been “new” to Europe at their time of launch.

But we have not lost sight of the fact that transparency and liquidity remain key. We pay special attention to the “clarity” of a new product when launched, because we know that investors must be able to understand what a fund aims to do as well as the index which it is tracking.

For example, our latest innovation has been to offer “daily currency-hedged” ETFs. These “all-in-one” products offer investors exposure to American and Japanese equities, based on recognisable indices such as the S&P, NASDAQ and Topix, without the underlying currency risk. The daily readjustment reduces the impact of exchange rate volatility through the use of a currency hedge. These are innovative, yet simple funds.

When it comes to innovation, at Amundi our over-riding belief is that ETFs should remain passive, simple, transparent, and liquid.

There has been an increase in the use of fixed income ETFs (government bonds, emerging market debt, corporate bonds investment grade and high yield), Could you tell us what is Amundi ETF’s view on this segment of the market?

Valérie Baudson: At the end of 2012, the 302 ETFs classified as fixed income represented around 21% of the Euro 252bn of European ETF assets under management1. Last year was a remarkable one for this segment as it accounted for more than half of ETF creation, i.e. 58 out of 102 new ETFs1. This rapid growth is continuing in 2013 with net inflows in this segment year-to-date representing more than half of total European ETF inflows of Euro 6.8bn2.

We believe that fixed income ETFs are still at a very early stage of growth, maybe similar to equity ETFs before 2007, and therefore the increased level of awareness of investors, the record inflows, the diverse range of offerings in this space, and the flexibility and ease of use of these products all point to a very promising future for this segment.

Most of the European investors who responded to the survey think that ETFs should remain beta-producing products (81% of respondents). However, 17% of them think that ETFs should become actively managed, which is an increase from just 11% in 2011. What is your view?

Valérie Baudson: Over the last few years, the European ETF market has seen the emergence of “Smart Beta” ETFs, either tracking “quantitative model” indices or replicating actively managed funds. These niche products have generated a lot of interest from the investment community, but their total assets under management remain small. Inflows into this category year-to-date are very limited compared to the Euro 6.8bn of inflows into the overall ETF market3. These are early days and we can probably expect this class of ETFs to continue to grow with the overall market.

At Amundi, we believe that ETFs are designed to provide investors with market exposure, nothing more, nothing less, through “allocation bricks” or tools to express their views on economic growth, interest rates, and relative value across asset classes. In other words, allowing them to make active investment decisions while we provide the passive product solutions.

  1. Source DB ETF Yearly Review January 2013
  2. Source Amundi ETF-Bloomberg 4 July 2013
  3. Source Amundi ETF-Bloomberg 4 July 2013

About Valérie Baudson

Valérie is Managing Director of ETFs and Indexing at Amundi. She is also a Member of the Business Committee. She joined the group in 2008 to launch and develop the ETF business line.

Valérie has a strong and varied background in equity capital markets. From 2004 to 2007, she was Marketing Director and a Member of the European Management Committee of Crédit Agricole Cheuvreux, the European Stockbroking subsidiary of Crédit Agricole Group. From 2000 to 2004, she held the position of Corporate Secretary and was a Member of the Management Committee.

Valérie started her career at Banque Indosuez where she managed international audit missions from 1995 to 1999.

Valérie is a graduate from a leading French business school, HEC (Haute Ecole de Commerce, Paris), where she majored in Finance.

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