However, rules in UK/Europe still require daily disclosure, so active ETFs have not yet caught on to the same extent.
Bailey adds there will be limits on innovation. He says: "You can’t box up anything – you need assets to trade on public markets. So it's not really possible to have a direct property or private equity ETF.
"But plenty of ETFs provide exposure to such asset classes by investing in related assets. For example, a property ETF might invest in [real estate investment trusts] or a private equity ETF might invest in the shares of publicly listed [private equity] companies.
"Of course, you can’t put something in an ETF that regulators disapprove of. Hence there are no crypto ETFs on the London Stock Exchange" – yet. With the SEC having made moves, it cannot be long before the UK regulators also make some provision.
Ultimately, innovation can be good or bad. Bailey explains: "The ETF itself is an innovation with a quite unique structure. But it has helped democratise investing and given investors low-cost exposure to all sorts of asset classes for generally quite low fees.
"There are some innovations within the ETF space that are undoubtably good. For example, the creation of the first gold ETFs, for example, has given investors a cheap and easy way to gain some gold exposure in their portfolio."
Yet, as with anything, clients should be careful about jumping into esoteric asset classes or complex indices; if they cannot understand what they are investing in, they perhaps should take more time to think about their investment choices and, certainly, should be seeking professional financial advice.
As always, it comes down to everything you always wanted to know about an individual client's investment goals - and one should never be afraid to ask about those.
simoney.kyriakou@ft.com
