When it comes to communicating ETFs, plan sponsors must lead with portfolio outcomes and tailor the message to each audience, says Global X’s Raghav Mehta
Each month at BPM, we offer a slate of articles and content pieces that go deep on a particular topic. This month, we're focusing on ETFs, how pensions are using them and the role it plays in institutional portfolios.
Exchange-traded fund (ETF) communication has evolved from product education into a strategic investment-governance function, a belief espoused by Raghav Mehta, vice president and ETF strategist at Global X.
As ETFs expand from broad market beta into active management, liquidity solutions, covered calls, leverage, commodities and concentrated themes, Mehta emphasized plan sponsors now need to explain not only what they own, but why they own it, what role it performs, how it should behave, what it costs and what would cause them to reconsider it.
“Members respond more readily to the retirement outcomes than to the product mechanics themselves. A member generally does not need a detailed explanation of authorized participants, the creation units, or the index reconstitution,” said Mehta. “A simple explanation may describe an ETF as a diversifying basket of investments that trades on the exchange but the communication around it should simply quickly move to the role it performs in the retirement portfolio.”
He argues that effective communication starts with stripping away the product label.
“Communication should begin with what the investment is intended to accomplish. It could be long-term growth, capital preservation, income generation, diversification, or even things like inflation sensitivity, liquidity, or liability support because these plans have liabilities,” he said, adding the technical details of how ETFs function on the exchange are secondary to the role they play in the portfolio.
A layered approach to communication
He stressed that different audiences require different levels of detail. After all, investment professionals, trustees, regulators, DB beneficiaries, and DC participants all have distinct needs, and a single disclosure document can’t serve all of them. Instead, he believes a layered approach works better: a plain-language summary for members, with deeper material on benchmarks, methodology, and risk available for those who need it.
Sponsors also need to be careful about how they position ETF liquidity, Mehta said. The ability to trade intraday may matter to the investment team executing portfolio changes but foregrounding that feature in member communications carries risk.
"Over emphasizing the tradability of the ETF may encourage participants to treat a retirement portfolio as a short-term trading account," he said. “Participants should be able to understand the risk and the objective of the complete solution rather than being required to analyze every single underlying ETF," said Mehta, underscoring that comes with establishing clear communication cadence.
Mehta emphasized communication should also follow a regular cadence, pointing to quarterly reporting, annual statements, governance reviews, and updates when investment options or market conditions shift, as examples, rather than surfacing only when problems arise.
“That highlights transparency appropriately,” he added.
Effective plan sponsor communication
According to Mehta, strong pension plans build formal communication infrastructure, everything from member communication policies, trustee education calendars, standardized approval templates, due diligence frameworks, and volatility communication protocols. They also retain records of past material communications. Whereas weaker sponsors tend to engage only after a complaint, a market disruption, or a pointed question from a stakeholder forces their hand.
While conversations with Canadian plan sponsors still begin with the investment case, Mehta acknowledged governance considerations now enter the discussion much earlier than they used to, with sponsors pressing on board approval processes, trustee education, fiduciary documentation, member communications, and ongoing monitoring and reporting.
The depth of that education also depends on the sponsor's experience with ETFs, he noted. For example, first-time adopters tend to focus on foundational mechanics: creation and redemption, the difference between exchange volume and implied liquidity, premiums and discounts to NAV, active versus passive structures, tax implications, tracking error, currency exposure, and the risks of product closure or benchmark changes.
In contrast, experienced institutions skip past those basics and ask about evaluating passive versus active ETFs on different terms, explaining covered call strategies to stakeholders, executing large trades, stress-testing ETF liquidity, and governing custom or seeded strategies over time.
Product complexity also shapes the communication burden. Broad equity beta ETFs require less explanation, while active credit strategies demand a walkthrough of the manager's process, covered calls need payoff and distribution analysis, leveraged ETFs require education on daily resets and path dependency, and thematic or commodity ETFs call for concentration and valuation analysis.
He suggests sponsors who struggle tend to lead with tickers, fees, yields, or product features rather than explaining why the allocation exists, why this vehicle was selected over alternatives, and why the position is sized the way it is.
“A struggling sponsor might communicate reactively instead of proactively, and often only after a question or a market disruption or after the fact that a complaint has occurred,” he said.
Implementing proper ETF governance
That distinction matters, he said, because ETFs that look similar on the surface can differ sharply in weighting, concentration, currency exposure, derivatives use, rebalancing rules, and tax treatment. For example, cash ETF, a corporate bond ETF, an S&P 500 ETF, and a uranium ETF share almost nothing in economic terms. Treating them as a single "ETF allocation" obscures the risk, duration, currency exposure, and expected returns embedded in each position.
“Each ETF should have a portfolio job or an objective or an outcome,” Mehta said, adding sponsors need to separate the vehicle from the strategy from the benchmark.
According to Mehta, effective plans define success criteria before making an allocation - the holding period, benchmark, risk budget, liquidity assumptions, review schedule, rebalancing criteria, and exit conditions. Additionally, proactive sponsors prepare materials in advance, pointing to FAQs, payoff diagrams, cost comparisons, stress scenarios, drawdown explanations, liquidity analyses, and exit condition summaries so trustees can articulate the purpose of any allocation, the principal risks involved, and how it will be monitored.
Ultimately, the goal is to have everything documented before questions arise, not assembled after the fact, he said.
“ETF providers can supply all the research, analytics, education, the capital market support, and the portfolio construction expertise, but the fiduciary responsibility remains with the plan sponsor,” said Mehta.
