ETF veteran steps up to oppose the motion in etfLIVE’s big debate
The principal opposer in etfLIVE’s debate, ‘This house believes ETFs will ultimately increase instability in the capital markets’, is Allan Lane (pictured), co-founder of Algo-Chain, a model portfolio firm which exclusively uses ETFs.
Lane has been working in the ETF industry since 2008, having been in the hedge fund world before that, overseeing the implementation of the investment strategies in Barclays Global Investors’ (BGI) global macro hedge fund since 2005.
As Lane puts it, from 1992 to 2005, he was on the sell side of the investment industry and from 2005 to now, on the buy side.
He was an advocate of ETFs from the outset. “They are democratic,” he says. “With the same fee whether you were an institutional fund manager, or you were buying from a retail broker’s platform.”
And, he points out, the range of ETFs in 2008 wasn’t as plain vanilla as one might think – he recalls ESG ETFs from back then, and high yield bond ETFs.
Then as now the principal buyers were still largely institutional in Europe and the golden rule that in the US the audience is 50 per cent retail and 50 per cent institutional while in the UK the split is 20 per cent retail and 80 per cent institutional, largely holds true.
However, Lane comments: “It is changing now as more firms are bringing ETFs into the investment proposition over here.
“Evidence shows they behave well across all market cycles, they don’t surprise us like some active fund managers do and the increasing war on fund management fees means more scrutiny on active managers’ performance.”
Lane cites Bridgewater, one of the world’s biggest active fund groups in the active alpha equity space, which was flat in a year the S&P 500 returned over 30 per cent.
In 2008 at BGI, Lane ran the research and development team for what was then, certainly in comparison with its enormous size now, a fledgling iShares, saying that he always thought it would warrant its enormous growth path.
In 2012 Lane left to set up Twenty20 Investments with Irene Bauer, creating a discretionary fund management firm with an ETF focus for the UK wealth manager audience. The pair of PhDs run Twenty20 and, since 2018, Algo-Chain, an unregulated fintech version of their ETF database and model portfolio platform.
“We had the challenge of changing behaviours because 90 per cent of IFAs didn’t like ETFs because they were used to the commission they got from active funds,” Lane says.
The Algo-Chain fintech model can travel across borders, offering a global portfolio service to wealth managers, brokers and financial advisers.
“Algo-Chain was a convergence of three mega trends: ETFs, model portfolios and ESG,” Lane says.
“Everybody that has model portfolios needs ESG compatible portfolios and we can do that using ETFs.”
It’s an entirely business to business model at the moment, with fees coming from a licensing option or a revenue sharing scheme.
“People think ETFs haven’t been tested in down markets,” Lane says, “but they were tested at the end of February, they were tested in 2008 and have been tested many times in between.
“The liquidity of ETFs is the topic that confuses a lot of the audience who had too much misleading information thrown at them. The liquidity of an ETF in fixed income in a crisis, for instance, is remarkable in that it creates liquidity where there had been limited flows in the underlying cash bond market.”
Lane cites the fact that in possibly the biggest trading weeks ever at the end of February, high yield bond ETFs saw a huge amount of turnover and operated as expected, whereas the underlying bonds were not as accessible to the same degree.