On the flipside, BlackRock’s Fuhr said a growing source of demand for ETFs came from investors wanting to access mainland China shares, but being unable to do so because they either did not have a Qualified Foreign Institutional Investor licence, or had exceeded the quota assigned them under their licence. “Institutions are realising that by using a [Hong Kong-listed] ‘H Share’ ETF, they don’t need to worry about the quota,” Fuhr said. Globally, Fuhr said MSCI remained the most popular index provider on which to base an ETF, because its “consistent methodology” supported the ETF base-case of transparency and tight tracking of their underlying indices. She said the ETF market was unlikely to see a proliferation of players, because brokers “only become excited about being market makers in these things when they know the volumes are going to be big”.

The global ETF industry will face a big challenge if the European Parliament passes the Alternative Funds Directive, because it will force all European institutional investors to invest in pooled funds with UCITS licencing only. However, Fuhr pointed out that European funds are major investors in US-domiciled ETFs, which spurn UCITS in favour of ‘1940 Act’ licensing. “You could see European pension funds forced to liquidate their US ETF holdings,” Fuhr said, predicting that US-based ETF providers would have to establish UCITS-compliant versions of their products