Brokerages eye ETF play to take advantage of the rising investor interest

Broking houses are looking to tap into exchange-traded funds (ETFs) to take advantage of the rising investor interest in passively-managed products. 

“We are seeing a pick-up in transactions in the passively-managed products. We have been marketing ETFs aggressively to our clients given the low-cost structure, lower volatility at indices level and diversified portfolio offering,” said Dhiraj Relli, managing director and chief executive officer of HDFC securities. 

Over the last three years (between 2016-2017 and 2018-2019), investor assets in ETFs have grown at compound annual growth rate of 74 per cent. At the end of December, the asset base stood at Rs 1.77 trillion, which was 32 per cent higher from last fiscal’s (2018-2019) closing tally. 

Instead of just focusing on earning brokerage selling ETFs, broking houses are also considering packaging multiple ETFs as part of a more customised advisory service offering multiple asset exposure. 

Recently, ICICI Securities launched ETF-Intelligence Portfolio, that can invest in multiple assets including large-cap equities, mid-cap equities, fixed income and gold through different ETFs.  

After assessing risk-profile of client, the investment is allocated in different targeted weights in various ETFs. As and when allocations change with price changes of underlying assets, the investment is automatically re-balanced to targeted weights by selling units of ETFs where targets are breached. 

 

 

“Such a product also helps in our larger strategy to granularise our business model and avoid depending upon any single line item. At fees of 15 basis points per quarter (as share of assets), this advisory product offers asset allocation to retail investors at affordable rates,” said Vijay Chandok, managing director and chief executive officer of ICICI securities. 

HDFC securities is also offering an ETF product where investors can invest in 50 per cent of allocation to a Nifty ETF, 25 per cent each to Nifty Junior ETF and banking ETF. 

According to market participants, investors have been recently looking at ETF alternatives, especially in the large-cap space. 

“In the last two years, actively-managed funds have failed to beat their benchmarks. On the other hand, ETFs that track these benchmarks such as Nifty, have delivered better than returns than active funds,” said Nithin Kamath, founder and chief executive officer at Zerodha. 

Market participants add that ETFs are already popular in matured markets, and in due course domestic investors can also shift assets to ETFs given low-cost structure and steady return profile. 

“At present, distributors and most fund houses don't market ETFs heavily due to low revenues in these products. However, these products have potential to quickly gain large scale through digital platforms,” Relli added. Industry players add that such products can help in increasing participation of retail investors as they are simpler to explain to first-time entrants.  

Last December, Bharat Bond ETF launched by government and managed by Edelweiss AMC garnered large part of the Rs 12,000 crore worth of bids through digital platforms of various broking houses.