The UK’s Investment Association to include ETFs, ‘bumping up visibility’ says AJ Bell’s Laith Khalaf
Back in December, the UK’s Investment Association (IA) announced that from 19 April 2021, ETFs will be included in their sectors, with the inclusion coinciding with the division of the IA Global Bonds sector, which will be split into 14 new sectors.
At the time, the IA wrote that the creation of the new bond sectors was part of the IA’s review of its sectors to ensure they remain relevant and fit for purpose for investors, and to accommodate the over 500 ETFs set to join the sectors.
ETFs joining the IA sectors have nominated the most appropriate sector for each fund. Once completed, the IA’s sectors will contain over 4000 funds, divided across 52 sectors.
Commenting on the arrival of ETFs in the IA’s sectors, Laith Khalaf, financial analyst at AJ Bell, says: “The inclusion of ETFs in the Investment Association sectors may sound like an arcane technical development, but it marks another step into the mainstream for ETF investing in the UK. It will bump up the visibility and comparability of ETFs, and provide a further competitive challenge to active funds and index trackers.”
He notes that currently the most popular ETFs with DIY investors on the AJ Bell Youinvest platform show a marked preference for simple, plain vanilla, index tracking ETFs, both in the last twelve months, and the previous year.
However, he writes that there are two notable exceptions. “One is the iShares Global Clean Energy ETF which has proved extremely popular in the last year, particularly after the election of Joe Biden as US President, on the back of his green energy infrastructure plans.
“The other is the iShares Physical Gold ETC, which gives investors low-cost exposure to the sanctuary of gold, and importantly, is physically backed with holdings of the precious metal. Physically backed gold ETCs have been a welcome addition to the UK investment landscape, because they give investors a convenient way to get access to the safe haven metal in their SIPPs and ISAs, which can act as some ballast in distressed markets.”
Joe Parkin, Head of Banks and Digital Channels in the UK at BlackRock, says: “The inclusion of ETFs in the Investment Association’s Sectors reflects the increasingly important role that indexing is playing in the UK Wealth market. We expect that the UK is entering a period of accelerated growth for indexing across wealth portfolios and that current levels of 10-20% within the portfolios of financial advisors, traditional wealth managers and private banks are expected to double in the next four years. The ability to make like-for-like comparisons between the full range of investment funds available in the UK will be a huge benefit for retail investors and advisers as they to select appropriate products for their investment objectives.”