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TAKE YOUR PICK r

By John Hunt

obert Broadwell, Vice President at asset management firm BlackRock, is meeting institutional investors in Doha about the firm's ‘iShares’ product, for which he is Head of Sales for the GCC. Qatar Today meets Broadwell to learn about iShares. What is it, and how is it relevant to Qatari investors? iShares is a brand of Exchange Traded Fund (ETF) which is gaining popularity among investors.

The concept of the ETF is a pooled investment fund, similar to a unit trust or mutual fund, which can be bought and sold on a stock exchange, like a share in a company. The difference between iShares and ‘regular’ shares is that you can buy into an entire particular market or markets. For example, if you think London's FTSE 100 index is going to begin

to perform well again, then you can invest in the market as a whole, rather than an individual company or bond. Should the FTSE 100 pick up, say, 10% in value over the course of a year, then the value of your investment in the market will exactly mirror that rise, minus fees.

Seeking new investors

Broadwell has been working around the region ‘for the past couple of years’ seeking new investors for his product in the shape of banks, pension funds and private client advisors to HNWIs (high net-worth individuals). That ETFs have mushroomed in popularity over the last decade – $100 billion (QR365 billion) in assets under management in 2001, over $1 trillion (QR3.65 trillion) now – indicates an appetite for the product but, he says, that appetite is keener now than before.

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“Prior to the crash, people were more inclined to take risks with their investments, but now they are more cautious, and this is why ETFs are taking off”

“The economic crash of the last couple of years has had a positive impact on the levels of new business we are doing,” Broadwell explains. “Prior to the crash, people were more inclined to take risks with their investments, but now they are more cautious, and this is why ETFs are taking off – one of their selling points is the level of security they offer an investor,” he says.

Historically, many investment decisions have focused on return in isolation. But there is growing recognition that return must be considered in the context of risk and cost. The ‘broad base’ composition of the ETF model means that, while the very nature of investments means they are not guaranteed to increase in value, the investor is protected against the catastrophic failure of a single entity. Broadwell cites the case of the US bank Lehmann Brothers, whose collapse in 2008 left thousands of investors with worthless derivatives.

“What am I left holding if the single company which holds my investments fails?

Nothing,” he says. The object lesson here is an old one – don't put all your eggs in one basket.

“With iShares there are over 400 indices available covering the various global markets,” says Broadwell. “From the available options you can pick single or multiple stocks, single or multiple markets, single or multiple funds. The analogy I like to think of is of an enormous box of crayons. You can choose as many or as few colours as you like with which to ‘illustrate’ your investment.”

The haven of gold

Of the trillion dollars plus that iShares is managing in ETFs, over $60 billion (QR219 billion) worth is in gold, and this amount grows daily. Economic upheaval makes some people nervous and the ‘fall back’ position of investing in something solid and historically appreciable waxes in popularity. It's ironic that one of these positions should be in the company of the physically inert gold. It's also ironic that the more people come looking for the relatively risk-free shelter that the element represents, the more bullish – and there26

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Robert Broadwell, Vice President at asset management firm BlackRock fore slightly more volatile – the market becomes. Broadwell explains the popularity of gold as a proportion of funds managed by iShares by pointing out that, “ETFs with a gold ingredient are backed up by a security note drawn up against the actual, physical bullion in a vault somewhere. The cost of investing in gold is actually cheaper for our customers than other types of stock and certainly compares favourably with the cost of buying the gold yourself and the cost of storage.

Furthermore, you negate the risk of getting robbed on the way to the bank!”

While security is one of the ETF selling points, Broadwell also cites the flexibility of the model that allows the mildly controversial practice of short-selling should you wish to bet against a particular market. Short selling is becoming increasingly frowned upon by the big markets due to its potentially damaging effects and Broadwell does not disagree with me when it is described as having slightly ‘sleazy’ connotations, “...but it's still legal,” he says with a smile.

The likelihood of the dreaded ‘double dip’ in global markets is one that splits

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economists down the middle and while Broadwell's thoughts on the matter are discussed between us, he's keen to point out that while BlackRock does not offer investment advice – it enables the means of investment – should you wish to back falling markets, this option is available to you.

Transparency of investment is another feature of the EFT. With some types of investment, there is a lack of clarity as to exactly where your money is actually invested. There may also be little transparency to see how the investment is performing on a daily basis. iShares ETFs, claims BlackRock, ‘consistently achieve their objective of closely tracking the performance of the market’ and the details of where your money is invested – and its current worth – are available online to customers. Getting in and out of an investment position is quick and testament to the flexibility and liquidity that Broadwell claims for his product.

The fact that Qatar is a booming and cash-rich economy would doubtless have had an impact on Broadwell's presence here but on being asked if there is anything particular to the Qatari market that demands he be here, a couple of interesting points were raised. Firstly, he says, “iShares offers a number of Shariahcompliant funds which are relevant to local investors”, but he also insinuates that these same investors are somewhat ahead of the curve in their appetite for the product, which has done most of its business in Europe and the US thus far.

It seems Broadwell's services are in demand both actively and proactively when he says, “People are looking for investment variety, and iShares provides that.

Institutional investors in Qatar have been using ETFs for years and on top of that I am seeing an increasing understanding and awareness of the product.

“Demand for diversified products is becoming a commonplace and people are more curious about ‘other’ types of investment,“ he says, acknowledging the active nature of the demand for iShares but also giving us a glimpse of the sales-

man psyche when he says, “I'm also here because I believe in the product.”

A ‘democratic’ investment

The underlying concept of the ETF – multiple choice – is one that Broadwell champions. “Choice,” he says, “is good.

Choice means competition and this is beneficial to the investor in terms of keeping costs down. There is also a democracy about the product that appeals to me. You don't need to be rich to get involved in ETF investment – you can buy a single share in a particular market from $20-$30 or so. Anyone can get involved and I think that's pretty cool.”

Secure, transparent, flexible, accessible to all? Sounds good, but what's it going to cost me? To say that Broadwell wouldn't be drawn on the specifics would be to do him a disservice as, in concert with the myriad ETF investment choices available, costs vary according to a variety of factors – the size and make up of your portfolio and number of changes to your portfolio are two that can influence the bottom line. However, iShares' promotional literature claims that ETFs are significantly cheaper than index-tracking mutual funds and managed mutual funds (with the caveat that the extra cost of the latter stems from the fact that it is an investment type which aims for higher returns than a market or index). “Don't always go with the cheapest sticker,”says Broadwell. “Look at the total cost of the package and you will find we are competitively priced.”

So, why use iShares and not a competitor? “We're proficient. We know what we're doing simply by dint of the amount of experience we have. It's a ‘legacy’ product and we've been doing it the longest. It's always good to go with a provider that's big in scale and with iShares you'd be managed by a fund with a trillion dollars' worth of product. You'll be supported by our research around the product and since we were there first, our funds are largest,” he says. And with that, Broadwell hurries off to his next appointment n

“The analogy I like to think of is of an enormous box of crayons. You can choose as many or as few colours as you like with which to ‘illustrate’ your investment”

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