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ETFs Have Reshaped European Investing — But Tread Carefully, Says David Stevenson

25 years after their debut, ETFs offer unmatched access — but come with critical choices for investors

A Personal Look Back at a Market Revolution

In a candid reflection on the 25th anniversary of Europe’s first exchange-traded funds (ETFs), investment expert David Stevenson — long-time FT columnist and author of a 2009 book on ETFs — says the growth of the ETF market has been “incredible” but warns that picking the right fund remains “more art than science.”

“It started modestly in April 2000, but today we have over 3,000 ETF products in Europe, with £2.4tn in total assets. That’s a staggering transformation,” Stevenson said.

Unmatched Access, Unprecedented Choice

Stevenson highlights that ETFs have significantly lowered costs while massively expanding access to global and thematic markets. “You can track the MSCI World or the S&P 500 for less than 0.1% in fees — that was unthinkable two decades ago,” he noted.

From global equities and ESG-focused funds to FTSE 100 trackers and hedged products, investors are now spoiled for choice. “But that’s exactly why people need to do more homework,” he cautioned.

Ground Rules from an ETF Veteran

In the interview, Stevenson laid out a few guiding principles:

1. Choose Asset Classes Wisely: “I wouldn’t use ETFs for small caps, private assets or most Japanese equities,” he said. Liquidity and market structure matter.

2. Understand the Benchmark: “Many people still use the Dow or Nikkei — but these are outdated benchmarks. The S&P 500 is more efficient, and for tech exposure, the Nasdaq makes more sense.”

3. Customize Your Angle: He encourages investors to think about style — such as value versus growth — or even choose equal-weighted indices. “Sometimes, adding a tilt to your ETF gives better long-term results.”

4. Don’t Fear Active ETFs: While traditionally passive, some fixed income ETFs now offer active management. “In a high-rate, high-deficit world, I think that’s smart,” Stevenson argued.

Not Just About Cost

Though falling total expense ratios (TERs) have helped democratize investing, Stevenson warns that “the cheapest fund isn’t always the best.”

Features like currency hedging, synthetic replication, and income vs. accumulation structures all matter. “Especially in places like Japan, currency-hedged ETFs can save you a lot of pain.”

The Next Big Bets? Defence and Robotics

Looking ahead, Stevenson sees opportunity in thematic ETFs — despite their reputation for being gimmicky. “The AI rally proved that concentrated, thematic plays can work. My current bets? European defence and Chinese-led robotics.”

He also points to money market ETFs and income-generating gold funds as essential tools for risk-conscious investors. “They’re not bold, but in today’s world, cash-like exposure matters.”

Conclusion

David Stevenson’s message is clear: ETFs have forever changed how Europeans invest — but success lies in thoughtful selection, not just blind faith in passive products. “ETFs are tools. Used well, they’re powerful. But like any tool, you need to know what you’re doing.”

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