“Our job is to help clients deploy their capital efficiently; that’s all,” he says. “The ETFs do the rest.”
Tony Kelly, head of capital markets at iShares, the biggest provider of ETFs worldwide, says Browne is too modest.
Good Listener
“Reggie has been so successful because he does a better job at listening and figuring out what clients need,” he says.
ETFs, which were introduced in the U.S. 21 years ago, offer the diversity of a mutual fund with the tradability of a stock. Each ETF is a bundle of securities, almost always tracking an index, that is listed on an exchange. Tradable throughout the day, transparent and generally less expensive than mutual funds, ETFs have grown from about $79 billion in assets in some 100 funds in 2000 to $2.4 trillion as of Dec. 31 in almost 5,000 funds, according to BlackRock. Some $700 billion of the assets were outside the U.S. on that date. They’re growing fastest in Asia, where ETFs are a $168 billion market. Europe accounts for $420 billion.
“There’s been no other investment vehicle as transformative as ETFs,” Browne says. “They’ve allowed individual investors to get into so many asset classes. Gold, for example. You had to call a specialized broker, and now you just buy it through your Schwab account.”
$15.3 Trillion
In 2013, U.S.-listed ETFs accounted for $15.3 trillion in equities trading, or 27 percent of the trading on all U.S. exchanges, according to NYSE Euronext. They’ve been hugely disruptive to active stock- and bond-picking mutual funds. From 2008 to the end of 2013, U.S. ETFs gobbled up $895 billion in new money, according to the Washington-based Investment Company Institute -- money that might otherwise have gone to actively managed mutual funds. Those mutual funds garnered just $403 billion in the same period. While traditional mutual funds still manage a much larger $10.6 trillion, ETFs are gaining fast.
“ETFs are the biggest innovation in the distribution of investment products since the invention of the mutual fund in the 1920s,” says Rick Ferri, founder of Portfolio Solutions LLC, a Troy, Michigan–based financial adviser with $1.3 billion in client assets.
Hedge-fund managers were among the first to embrace ETFs. Retail investors have piled in over the past decade, and conservative institutions like pension funds and endowments have taken them up with increasing gusto in the past three years.