Broaching the subject of alternative investments can be scary even for retail clients looking to diversify their portfolio, according to WisdomTree.
But not all alternatives are created equal.
The exchange-traded fund (ETF) sponsor and asset manager brought several different asset classes to the table over the last year, including its contingent convertibles (CoCo) bond ETF and AI robotics ETF.
The firm said the CoCo ETF was the world’s first, at the time of the launch.
CoCos can be defined as a form of hybrid debt and can be converted into equity to absorb an issuer’s capital losses [upon the occurrence of certain triggers].
The next big thing?
Christopher Gannatti, WisdomTree’s head of research in Europe, told International Adviser that the alternative asset classes the firm unveils are “not targeted for retail” but making them Ucits compliant vehicles opens them up as a viable option for the everyday investor.
He added: “It is tricky because you always try and strike a proper balance between weird and innovative, and then clients have a look at it and say I don’t want to invest in that.
“There are a number of alternative asset classes that do exist and there aren’t currently ETFs on them.
“But one of WisdomTree’s competitive advantages is that we have that expertise to bring things that may not have been in the ETF structure to the sector.
“We are always looking at the broad spectrum of alternative asset classes to determine what that next thing might be.
“We can continue to explore bringing things like CoCo that people wouldn’t readily say that makes sense as an ETF.”
The rise of the ETF
ETFs have not been around forever. The first one was 25 years ago, and now they have become a popular vehicle for the retail investor.
Gannatti said that currently the Italian market has a passion for the CoCo bond ETF – where there is a broader range of investors – so there is a demand for the weird and the wonderful.
But just how has the ETF become a rival for the mutual fund?
For Gannatti, it was “not a foregone conclusion” when looking back a few years ago. “The high yield market itself was not appropriate for ETFs.
“It took a while for people to see a few different blitzes along the way.
“People saw that the products did not crash the market and people were able to trade in the manner that they expect.
“I hear far less about the high yield market being a risk or the ETF market being a risk to the high yield market than even a few years ago.
“It is interesting how we see these evolutions.”
On the horizon
Ideas for the latest ETFs may be hard to come by but WisdomTree has a plan for the future.
“We are having discussions at the moment, to implement in around six months to a year from now, expanding the thematic range we have, which is currently AI,” Gannatti said. “Fixed income is a big area for us, but a year ago we would have had zero Ucits fixed income strategies.
“Now we have four fixed-income strategies. It is an area we continue to focus on.”
