ETFs bear fruit

Originally intended as purely retail investment products, exchange-traded funds are now being used on a limited basis by some European pension funds. But opinions about their benefits to institutional portfolios are divided. By Ryan Davidson

The direction of financial innovation is typically such that new products emerge in the wholesale markets and then filter down to retail. But a couple of years ago, exchange-traded fund (ETF) groups at major banks in Europe realised they may have on their hands a product whose path of adoption could move in the opposite direction. Increased competition among providers drove the cost of ETFs down, and banks and pension consultants began to tout ETFs as an essential new tool for pension fund