Q&A with Linda Zhang from ETF firm Purview Investments

Linda Zhang, founder of
Purview Investments
Linda
Zhang

• Exchange-traded funds have become wildly popular in the
  past decade, and account for a quarter of all trading activity
  on exchanges.
• We spoke to Linda Zhang, the founder of ETF investment
  management firm Purview Investments, about her firm’s strategy
  in a saturated market, how she’s helping women in the asset
  management space, and the future of the investment
  industry.  

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As the index and exchange-traded fund industry continues to
attract assets away from mutual funds, investors are demanding
more and more nuanced vehicles to express a wider range of
investment strategies.

There’s an ETF for almost everything, from Catholic companies to
green and eco-friendly
investments. Right now, the number of indexes exceeds the total
number of listed equities in the world by about 70 times.

As a result, active ETFs — those that track a bespoke index
created for a particular point of view
on a sector or theme — are on the rise, particularly since they
retain the low-cost transparency that makes the structure so
popular among investors.

We spoke to Linda Zhang, Ph.D., CEO of Purview
Investments, a registered investment advisor that offers
actively-managed ETF portfolios focused on global and impact
strategies. Her investment approach incorporates the impact on
the world — whether that be through environmental screens, good
governance or gender equality — along with risk and return.

Dr. Zhang, a veteran of State Street and BlackRock, also
co-founded Women
in ETFs, the first women networking group devoted to the
industry.

We spoke with her to learn more about where investors are heading
when they don’t want to sacrifice values for performance, and why
all we all own the issue of trying to close the gender gap in
asset management. 

How do you differentiate yourself when Exchange-Traded
Funds seem to be highly commoditized? How do niche products
attract flows?

The ETF industry has experienced phenomenal growth thanks
to the competition among the product providers and the
ever-rising demand for a cost-effective and transparent product
structure. U.S. investors have over 1,900 ETFs to choose from,
which provide low-fee exposure to nearly any investment thesis
one might want. The commoditization of ETFs is great news for
investors.

At Purview Investments, ETFs are the building blocks to our
strategy. As an asset manager, we express our global investment
views using ETFs on behalf of our clients.

Despite the proliferation of ETF products, we see more
widespread adoption of what were once considered niche products,
such as smart beta, thematic and active ETFs. The success of any
niche product will depend on its sound long-term investment
thesis, not a fad. Investor education is key: they need to know
how to fit these products into an otherwise bland portfolio and
how to avoid misusing them.

So tell me about Purview’s portfolio and
strategy.

At Purview, we make investment decisions in line with the
principles of Environmental, Social and Governance (ESG). We
offer ESG-focused, actively-managed ETF portfolios, a cleaner
version of a global multi-asset strategy. Our hope is to “detox”
one’s portfolio without altering the risk and return profile of
one’s investment objective.

We think it’s time to expand modern finance theory. For too
long, investors have considered only two dimensions of
investment, return and risk. It’s time to add the positive ESG
impact as the third pillar of modern finance – return, risk and
impact. Together, they transform the traditional 2D Efficient
Frontier line to a new 3D Efficient Surface. The new framework
allows investors to choose cleaner and more equitable portfolios
on the Efficient Surface at the same time meeting their return
objective and risk tolerance.

In practice, we implement our investment views using ESG
ETFs and Impact ETFs that provide exposure to global equities and
fixed income. The ESG-labeled ETFs have a young history but have
experienced a nearly 70 percent annual growth rate, as of the end
of June 2018, off a small base. Purview is a pioneer in ESG
investing through ETFs. We see ripples ahead and potentially
waves coming.

Who tends to invest in themes? Is there more
interest on the institutional side vs. retail? Where is growth
coming from?

We have seen strong interest from both individuals and
institutions. On the individual side, it may surprise you to hear
that we currently have more men than women on our client list.
The stereotype that men don’t care about ESG investing is simply
not true.

We also field many inquiries from millennials. In general,
they get the impact dimension of the equation very quickly and
want to be part of that new investment paradigm. We’re currently
working on ways to allow more of them to become direct Purview
clients without the hurdle of a minimum, a typical feature of the
SMA structure.

Meanwhile, institutions have been behind ESG investing for
years, especially in Europe. Many have invested in real projects,
mutual funds and SMAs of individual securities. We’re now seeing
endowments, emerging manager programs at large pensions and
pension consultants take notice of our ESG ETF-based strategy as
a cost-effective, transparent and liquid alternative to
complement their portfolio allocation. They need impact investing
through the public markets.

Talk a bit about Women in ETFs. What is its mission
and how is it helping women in the asset management
space?

Women in ETFs (WE) was founded by five women in 2013, the
year I entered the ETF ecosystem. We envisioned a network to
connect, support and inspire women and all genders in the
industry — and WE has exceeded all expectations. We now have more
than 4,000 members globally.

Our mission is to address and close the gender gap issue in
asset management. This is not just a women’s issue or a men’s
issue — it’s ours to own and solve.

We are currently launching the WE Speaker’s Bureau aimed at
addressing the conference panel gender gap. Thus far, we’ve
received strong support from Inside ETFs, Morningstar and IMN.
Our goal is to raise the number of women panelists to 25 percent
in the next 18 months from its current levels in the
mid-teens. 

As a leader and mentor of young women in the space, what
are some of the challenges they face?

The root gender issue our industry faces is that women are
often not being heard by colleagues and leadership in the
industry. It’s even worse for young women. Women’s interest,
drive and talent are all there. Unfortunately, we’re still facing
a culture that neither pays nor promotes women at the rates on
par with men, and that’s in part because asset management is
stuck in a connections-based mindset versus a results-oriented
one. This stifles innovation and shuts out diverse talent. So not
only is it immoral, it hurts companies’ bottom line. We have to
change that, and quickly.

What are the biggest culture differences between
the ETF and mutual fund worlds?

The ETF world tends to encourage transparency, innovation
and collaboration among different parts of ecosystem. That makes
sense, because the industry arose, in part, out of a demand for
those values in investing. Meanwhile, the mutual fund world still
emphasizes “secret sauces” and proprietary processes over
openness and collaboration. It’s not the winning mindset, nor the
industry trend.

Are you seeing more blended portfolios
incorporating passive and active products?

More sophisticated managed portfolios are using a blend of
passive and active products because this approach allows them to
balance cost-efficiency with their investment precisions. But
most robo products at brokerage firms still use plain vanilla
passive products. Asset management firms, like Purview, are
changing that, giving investor options for more advanced
products.

How are mutual fund managers still justifying
fees?

It puzzles me, with the exception for those truly active,
less-correlated funds that will always appeal to some
investors.

What do you think the industry will look like
in 5 to 10 years?

I can foresee three possible trends. First, we’ll see the
continuation of the migration of mutual funds to ETFs. Mutual
funds will suffer more outflows to ETFs, especially in those most
efficient and most-followed asset classes.

The second trend is the integration of the mutual fund and
ETF businesses. More mutual fund shops will see the opportunity
on the wall and want to, or have to, create transparent, liquid
and cost-effective investment vehicles of their own.

And finally, I think that mutual fund firms have a precious
opportunity to become some of the best active ETF providers,
because they already have some of the best investment talent.
They just need to be comfortable with the fact that ETFs are the
product structure of the future.

Kiki O’Keeffe works in strategic communications at Makovsky
and is a writer in Brooklyn.