Matthew J. Arnold, CFA
Head of SPDR ETFs Singapore & Head of ETF Strategy & Research – APAC @ State Street Global Advisors

In the run-up to the Inside ETFs Asia conference, Jobs in ETFs sat down with Matthew Arnold, the Head of SPDR ETFs Singapore and Head of ETF Strategy & Research – APAC @ State Street Global Advisors. Matt talks about his career decisions, the biggest trends that will shape the ETF industry going forward, and a preview of the core message he will present at Inside ETFs Asia in Hong Kong.

Jobs in ETFs: Please tell us about yourself and your experience. How did you get into the ETF industry and how did it progress?

Matthew J. Arnold: I’m a Kiwi but I’ve spent the last 20 years working in the investment consulting and asset management in the US, UK and now in Singapore. Having worked during my formative years at a US investment consultant, I’ve always thought passive investing made sense for a lot of investors – large and small – but it wasn’t till I joined State Street in 2009 that I really had the chance to work on this side of the business. 

I got involved in ETFs when we relaunched our European SPDR business back in 2010/11. At the time, I developed an ETF Strategy & Research function for the business and it was great to be part of what was essentially a start-up operation. I moved to Singapore at the beginning of 2016 initially to develop a Strategy & Research team for the APAC region, but more recently to head up the SPDR effort in Singapore. ETFs are a great part of the asset management business in that you deal with a wide range of market participants and investors and it is great to be in an area that is experiencing such rapid growth. 

I’ve worked with some great active teams over the years too though, so I’m not one of those guys who believes active is dead, game over. An ETF is just another tool really, something that can be used alongside active and delta one products like index futures and swaps. I think ETFs will continue to make life difficult for many active managers, particularly those on the margin that aren’t really adding any value, but there will always be demand for folks that are doing something a little different and have a sustainable competitive advantage. I reckon I’ve worked with a few investors during my career that had an ‘edge’ and I’m pretty sure they will continue to be successful.

JE: As you moved up throughout your career, what questions were you asking yourself when it came to taking the next step? Can you give some examples?

Matt: I guess like many people I didn’t think of early career moves in strategic terms, it was more about moving on to try something different, develop new skills, build life experience or get away from a really annoying boss!?!?!  You do realise pretty quickly that if you’re to be successful over the long term, you really need to focus on your career path. 

Sometimes career success is a matter of being in the right place at the right time, but assuming you’re not doing something for yourself, I think it’s about choosing an organisation that jibes with your particular sensibilities and capabilities. What’s the environment like, is there opportunity for growth, is it in expansionary mode or retracting, things like that. At a quality organisation, you should be able to move around and take your career forward, so sometimes the initial job is less important than the long term potential an organisation offers. Looking at my time at State Street in particular, I’ve worked in London and now Singapore, as both a strategist and in sales which has been great from a work experience and professional development perspective.

JE: Why did you decide to take on the challenge of heading up the SPDR sales team in Singapore and what do you enjoy the most in your role?

MattWe launched the first ETF in Singapore back in 2002 and many Asian investors have used our US SPDRs for many years, so in that respect we have always been at the forefront of the ETF market in region. Having said that, we’ve perhaps spread ourselves a little thin from a coverage perspective, so this year we made the strategic decision to focus on the largest markets in APAC – Singapore, Hong Kong, Australia and Japan.

Looking at Singapore in particular, we think it represents a fabulous opportunity for the ETF industry and while we’re pleased with our current leadership position we feel we can do an awful lot more to encourage growth. It is a world class wealth and asset management hub and we expect the adoption of ETFs to increase rapidly over time in much the same way we have seen in other parts of the world.  As discretionary porfolio management and fee based advisory models become more popular in Singapore, we think demand for low cost ‘building blocks’ like ETFs will increase significantly. And while it is relatively nascent in terms of assets, the robo-advisory landscape is evolving quickly and ETFs are a natural fit for these types of investors.

On the institutional side, there are a lot of multi-asset managers and insurers that use ETFs in Singapore, so for us it is about getting out to see them, hearing about what they are doing and ultimately becoming a resource for them as they execute their investment strategies. This is the best part of my role… getting out to meet with clients and prospects, listening to their challenges and investment goals and hopefully offering something that will help them build better portfolios.

JE: You’ll be speaking at Inside ETFs Asia about the pros & cons of buying local, US-listed ETFs & UCITs in Asia. Can you give us a preview of your core message?

MattAsian investors are ‘lucky’ in that they can buy ETFs domiciled and traded locally as well as those in the US and Europe, as opposed to, say, many US investors that are restricted from buying European domiciled ETFs. So my message will be that investors in the region should look at the global ETF opportunity set when they make their investment decisions. Yes, it makes things more complex, what with 6,000 plus ETFs globally, but ultimately they will get better results if they consider all salient factors in making their ETF selection decisions.

Which index best defines the beta I am after? Where can I buy an ETF that tracks that index? What are all the costs involved, from total expense ratios through to taxes and execution costs? Does one domicile require more reporting than the other? And so on… We have the situation today where some Asian investors still buy Asian or European equity ETFs in the US because they are most comfortable trading US ETFs and believe that is where the liquidity is. Or they buy US equity ETFs domiciled in the US even though they would be better off from a total return perspective to buy ETFs domiciled in Ireland due to withholding tax advantage.

While the US market is far and away the largest from a total assets perspective, and benefits from a very transparent trading process, US ETFs are designed largely with the US investor in mind. So if you want to buy UK gilts or European sectors in an ETF you will really need to turn to Europe to get this done in the most efficient manner. 

One regulatory development that we believe will be tremendously positive for the European ETF industry is MiFID II. From an ETF industry perspective, a key part of the regulation, which goes into effect in 2018, is the mandatory trade reporting requirement. So whereas historically, a large majority of European ETF trades have gone ‘unreported’, maybe as much as 70 – 80% of all volume, come Jan 2018 all ETF trades on exchanges in Europe will need to be printed. This will provide investors with a more accurate picture of ETF liquidity and we feel it will encourage more investors in Asia to look at European domiciled ETFs as a serious alternative to some US ETFs.

Likewise, a mandatory trade reporting requirement across Asian exchanges would be helpful in instilling confidence in the locally traded ETFs. As a global ETF provider we’re ultimately agnostic as to where local investors buys ETFs, we just want to make sure they have considered all the important factors and are getting the best deal, all things considered. Investing is hard enough as it is, so you do not want to be adding implementation costs and tax drag unnecessarily. I guess the other key message will be that the investors need not do this alone, there are plenty of resources to help with analysis or advice. Whether it’s the trading community or the ETF providers themselves, all will be more than happy to help.

JE: The growth of ETFs has been phenomenal. What would you say are the biggest trends that will shape the industry going forward, especially the Asian market?

MattWhat we’ve found in the US and Europe is that once investors start using ETFs – and it doesn’t matter if it’s Mr Bloggs retail or the most sophisticated hedge fund – over time they generally find more uses for them within their portfolios. So a large institution might use our SPDR S&P 500 ETF for cash equitisation purposes, like the experience, and graduate on to more sophisticated uses of ETFs. Maybe they start using them for tactical asset allocation or in fixed income to improve the liquidity profile of their portfolio. Or they might find them an efficient way to immediately access an asset class like emerging market bonds. They are generally low cost, very easy to use and as transparent as anything out there, attributes that many investors have prioritised in the wake of the Global Financial Crisis.

One major challenge for the ETF industry in Asia – and I’m sure this has contributed to the lower rate of ETF penetration relative to other parts of the world – is the historical fund distribution model. Whereas explicit retrocession payments from fund managers to financial advisors and the like are largely banned in the US, Europe and markets like Australia, they are still prevalent in the very large fund markets of Singapore and Hong Kong.  So many local intermediaries are not compensated in the same way for holding an ETF for a client versus what they would receive if it were actively managed fund. The development of the fee based model that I mentioned earlier is driving change and certainly most private banks in the region are experiencing significant growth in their DPM businesses, so this is already proving to be something of a tailwind for the ETF industry.

Regulators are getting on board too; in Singapore for instance several changes have been made which have contributed to making it easier for people to invest in ETFs. The growth in multi asset and absolute return-oriented investing on the institutional side has also been a big driver globally and it will certainly contribute to growth here in Asia too. Overall then, there is a lot to look forward to here. As our US colleagues like to say, we’re only in the very early innings of the ETF story – there is a lot more to come.