"Switzerland is not a special case, but we are very rooted here"

Ed Gordon
Head of iShares & Wealth, Blackrock Switzerland

 

Mr Gordon, what brings a private banker to the ETF and index investing business?

The ETF business has developed enormously in recent years and has grown strongly. Many clients, whom I have also been able to look after in private banking, have recognised the advantages of ETFs. They are cheaper, transparent and liquid. They can be ideally used as building blocks in a portfolio. The share of index investments in a wealth portfolio in Europe is currently around 20% on average. The market penetration of index investments will continue to rise in Europe - in the USA index investments already accounted for 40%. That shows the growth path. It is exciting to be able to follow this development at BlackRock, the world's largest provider of ETFs.

ETFs are a mass business in which there is a fierce battle for market share and basis points in the margin: What is the attraction for you?

An enormous amount has happened since the first ETF was issued almost 40 years ago. The growth is both broad, in terms of the number and type of users, and deep, in terms of how ETFs are used. For example, there are countless thematic ETFs today. One example is ETFS that focus on renewable energies. New products are emerging all the time. What I also find fascinating about ETFs is that it is a very democratic instrument. Even private investors who do not have large assets can afford ETFs and participate in the market. For retail investors, the price is exactly the same as for a large pension fund. But there are also more and more areas of application for institutional investors. Institutional investors are increasingly using ETFs as a substitute for futures. Futures have become comparatively expensive because market makers have withdrawn. In addition, insurers in particular are increasingly using bond ETFs alongside equity products as an alternative to individual issues, where smaller counterparties, in particular, are sometimes no longer able to make use of them due to lower liquidity.

Performance or price: What is more important for ETF investors?

Both are equally important. There is no need to sacrifice quality and performance for cost. Indexation works for fixed-income securities and equities across asset classes and serves an increasingly broad range of portfolio use cases - from capital preservation to diversification. But there are other important reasons: ETFs make it easy to adjust and hedge portfolios and manage risk. In addition, pricing often works better than with individual issues, because ETFs can take more real-time information into account. This can be seen, for example, in the fact that ETF net asset values (NAVs) sometimes differ from the prices of the corresponding individual issues. This reflects better price discovery. This can be seen particularly well in fixed-income bonds. This is because most bonds are not traded daily. Therefore, many sources use estimated prices that do not take into account the widening of bid-ask spreads - but ETFs do.

What do you think of the never ending discussion about the advantages and disadvantages of passive and active investing?

Both variants have their justification. But there is not only one or the other. Both investment styles can be optimally complemented in a portfolio depending on the client's preferences - and every investment is, after all, an active decision. This can be observed very well in the fixed-interest area. So far, bond ETFs account for just 1 per cent of the $124 trillion global fixed income market. In a study we recently published, we forecast growth of around 23 per cent per year. By the end of 2030, bond ETFs are expected to reach $5 trillion in volume, or a share of around 5 per cent. The key reason for the growth spurt is the new applications for bond ETFs. Innovative, enhanced indexing strategies in the bond sector as an alternative to purely index-based and semi-active strategies are playing an increasingly important role. They rely on ETF bonds to adjust their portfolios to changing market conditions, value individual bonds and portfolios, reduce transaction costs, manage liquidity and hedge risks.

What are currently the main directions in the further development of ETFs?

Investments with an ESG (environmental, social and governance) and sustainability focus are experiencing strong growth. What started as a primarily equity-focused trend has also gradually expanded to many other asset classes - because more and more is technologically possible and more and more products are coming to market. In particular, the volume of sustainable fixed income index products across the industry has more than doubled every year since 2018. This is because investors are seeking to make their portfolios more sustainable. They value the transparent, standardised and rules-based approach of these fixed-income index products. A second focus is certainly thematic investments, which are increasingly accepted by private investors in particular and also very strongly by institutional investors. We want to make megatrends investable. To this end, we have already launched an ETF on the market this year and intend to do so in the future as well, if we find the right themes that can also be efficiently and effectively tracked with ETFs.

Sustainability: Is it possible to passively track investments that have a positive sustainability impact?

There are many different ways to integrate sustainability into the core of a portfolio: from excluding certain exposures to focusing on companies that are leading the transition to a low-carbon economy. Impact investing, for example, can be mapped via so-called green bonds.

As a foreign asset manager, Blackrock is strongly committed to developing the Swiss asset management industry. Is this part of Blackrock's policy or is Switzerland a "special case"?

No, Switzerland is not a special case. But we are very rooted in Switzerland. BlackRock has been present in Switzerland for over 25 years. We also have a Swiss fund company with funds domiciled in Switzerland for institutional and private investors. Our close ties with the Swiss financial market are reflected, among other things, in our close cooperation within AMAS and Swiss Sustainable Finance (e.g. our participation in the AMAS Board). And of course with our more than 120 employees here in Switzerland today.

What makes Switzerland a "special case" for you personally?

Switzerland is an extremely competitive and innovative country. Moreover, it is almost without exception to be found in the top positions in numerous rankings for various categories such as quality of life, education, etc. For me and my family, Switzerland is unique with beautiful landscapes and a high quality of life. We also benefit from the political and economic stability, the culture of innovation and the first-class education system: The Swiss education system combines high-quality university education with practice-oriented vocational training. This dual system offers the best conditions for training highly qualified personnel. The Swiss economy is also characterised by a liberal environment, continued stability of purchasing power, a low inflation rate, low capital costs and a very good investment climate. Switzerland's infrastructure is efficient and comprehensive. Thanks to the dense network of road, rail and air connections, Switzerland is closely integrated into the European infrastructure.

What other goals do you have - outside of your professional activities?

Outside of my professional activities, I pursue various hobbies. Be it sport, hobby beer brewer, Harley motorcyclist or as an outspoken EVZ fan. Above all, however, is my family. I spend most of my free time with my wife, my two daughters and our dog Ocean.