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special report www.etfexpress.com March 2013 etfexpress Global Awards 2013
special reportwww.etfexpress.com
March 2013
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etfexpress Global Awards 2013
Always committed to the highest quality standards, four of Lyxor’s major equity ETFs delivered the best performance versus their benchmark index in 2012*. This proves that not all ETFs tracking the same benchmark index perform the same. The outperformance of these ETFs demonstrates Lyxor’s ability to manage each fund efficiently in order to offer the best returns whilst at the same time minimising tracking errors. Behind our commitment to performance is a pledge to the highest quality standards, which runs through every aspect of our range, giving Lyxor ETFs the power to perform in any market.
THE POWER TO PERFORM IN ANY MARKET
THIS COMMUNICATION IS FOR PROFESSIONAL CLIENTS ONLY AND IS NOT DIRECTED AT RETAIL CLIENTS.Lyxor ETFs are open-ended mutual investment funds established under French Law or Luxembourg Law. This advert is issued in the UK by Lyxor Asset Management UK LLP (Lyxor UK), which is authorized and regulated by Financial Services Authority. *Rankings are based on peer group analysis. One peer group was created for each benchmark index. Each peer group included the 5 largest ETF Share Classes from the Top 20 ETF providers as defined by ETFGI, an independent research and consultancy firm. The 5 largest ETF Share Classes were defined according to the average daily Assets Under Management observed between 30 December 2011 and 31 December 2012. The performance of each ETF was determined by the change in Net Asset Value (NAV) from the last official NAV of 2011 and the last official NAV for 2012.
ALTERNATIVE INVESTMENTS l ETFs & INDExING l MUTI-ASSET INVESTMENTS l STRUCTURED INVESTMENTS
» RANKING #1 - LyxOR ETF MSCI EMERGING MARKETS
» RANKING #1 - LyxOR ETF MSCI USA
» RANKING #1 - LyxOR ETF EURO STOxx 50
» RANKING #1 - LyxOR ETF FTSE 100
Discover more at lyxoretf.comor email [email protected]
LyxOR ETF 4 OF THE BEST PERFORMERSON MAJOR EQUITy INDICES IN 2012
RISKS - Investors’ capital is at risk. Investors should not deal in these products unless they understand their nature and the extent of their exposure to risk. The index tracked by a Lyxor ETF may be volatile. Through Lyxor ETFs, investors are exposed to counterparty risks resulting from the use of an OTC (Over-the-Counter) swap with Societe Generale.
etfexpress GLOBAL AwArds Special Report Mar 2013 www.etfexpress.com | 3
Contents
Editor: James Williams, [email protected]
Sales Managers: Simon Broch, [email protected];
Malcolm Dunn, [email protected]
Head of Events: Katie Gopal, [email protected]
Chief Operating Officer: Oliver Bradley, [email protected]
Chairman & Publisher: Sunil Gopalan, [email protected]
Graphic Design: Siobhan Brownlow, [email protected]
Photographs: William Scott
Published by: GFM Ltd, 1st Floor, Liberation Station, St Helier, Jersey JE2 3AS,
Channel Islands Tel: +44 (0)1534 719780
Website: www.globalfundmedia.com
©Copyright 2013 GFM Ltd. All rights reserved. No part of this publication may
be reproduced, stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording or otherwise, without the
prior permission of the publisher.
Publisher
AWARDS 2013
In this issue…04 etfexpress Global Awards 2013 results
05 Winners prove that innovation is alive and wellBy James Williams
07 PIMCOBest Fixed Income (excluding cash) ETF Manager
09 Lyxor Asset ManagementBest Emerging Markets Equity ETF Manager
13 UBS Global Asset ManagementBest Europe Equity ETF Manager
14 SourceBest Alternative ETF Manager, Most Innovative European ETF Provider & Most Innovative North American ETP Provider
15 State Street Global ServicesBest North American ETF Administrator
16 STOXXMost Innovative Index Provider
18 Northern TrustBest European ETF Administrator
19 Flow TradersBest European & Asia Pacific Market Maker
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Results
AWARDS 2013 The winners
Best Commodity ETP ManagerETF Securities
Best Commodity ETF Manager (Asia)Mitsubishi UFJ Trust & Banking Corp
Best Fixed Income (all excluding cash) ETF ManagerPIMCO Source
Best Fixed Income – cash (money market) ETF ManagerAmundi
Best North America Equity ETF ManagerVanguard
Best Europe Equity ETF ManagerUBS
Best Emerging Markets Equity ETF ManagerLyxor Asset Management
Best Global (ex-US) Equity ETF ManageriShares
Best Global Equity ETF ManageriShares
Best Asia Pacific Equity ETF ManagerNikko Asset Management & Co
Best Currency ETF Managerdb x-trackers
Best Mixed ETF ManagerThinkCapital Asset Management B.V.
Best Alternative ETF ManagerSource
Most Innovative North American ETF ProviderIndexIQ
Most Innovative European ETF ProviderSource
Most Innovative North American ETP ProviderSource
Most Innovative European ETP ProviderBoost ETP
Most Innovative North American ETN ProvideriPath
Best North American Exchange for Listing ETFsNYSE Euronext
Best Asian Exchange for Listing ETFsHong Kong Stock Exchange
Best European Exchange for Listing ETFsLondon Stock Exchange
Most Innovative Index ProviderSTOXX
Best ETF Research ProviderETFGI
Best North American ETF AdministratorState Street
Best European ETF AdministratorNorthern Trust International Fund Administration Services
Best European Market-MakerFlow Traders
Best North American Market-MakerKnight ETF Trading
Best Asia-Pacific Market-MakerFlow Traders
etfexpress GLOBAL AwArds Special Report Mar 2013 www.etfexpress.com | 5
So anyone who doubts the importance of the ETF market is somewhat in denial. Factor in that there remains huge growth potential in Europe – with the US having led the way for the last 20 years – and there’s a lot to be excited about for ETF providers.
Indeed, 2013 looks to be continuing in the same vein as 2012. According to the latest ETFGI report, ETFs and ETPs posted net inflows of USD11.4billion globally in February. The biggest recipients were Equity ETPs, attracting inflows of USD11.6billion: a clear signal that investors have rediscovered their risk appetite. Fixed income ETPs, by comparison, attracted a mere USD1.3billion, while commodity ETPs – always a tricky asset class for investors – suffered net outflows of USD4.9billion. Year-to-date
As the winners demonstrated at the etfexpress Global Awards 2013 presentation, sponsored by Lyxor Asset Management and held in London’s Mayfair last month, the global ETF market continues to grow from strength to strength.
Year-on-year (through November 2012, based on ETFGI’s global ETF and ETP insights report), the number of ETFs increased from 3,025 to 3,336. Total ETF/ETP assets also increased, from USD1.526trillion to USD1.688trillion.
Sunil Gopalan, etfexpress Publisher, notes: “At this rate, the ETF market will rival hedge funds; even though total hedge fund assets reached USD2.25trillion in 2012, hedge fund assets have not gained significant traction post-08.”
Winners prove that innovation is
alive and wellBy James Williams
the etF industRy today
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PIMCOBest Fixed income (excluding cash) etF Manager
markets in its Global Advantage Bond Index, relative to the Barclays Global Aggregate Bond Index.
“Over the last few years the behaviour of bonds from peripheral Europe have acted more like credit risk, whereas bonds from EM countries like Brazil have acted more like interest rate risk. As a consequence, investors are increasingly drawn to EM. In our emerging markets local currency bond index, we’ve added countries like China and India, which are large drivers of EM growth, but typically excluded from EM local indices,” says Chan.Another example of adding “smart beta” relates to PIMCO’s short-term high yield ETF. Here, the aim is to provide exposure to the high yield market whilst trying to minimise duration risk.
Consequently, the benchmark index only looks at the “zero to five-year part of the market”, says Chan. In addition, a rigorous screening for companies whose viability is in serious question, aims to reduce the potential for capital loss in clients’ portfolios and better meet investment objectives through security selection.
PIMCO’s short maturity series of active ETFs – spanning USD, GBP and EUR – focuses on cash management. In today’s pernicious low interest rate environment, PIMCO is helping its clients to add a little extra return on cash that they don’t need immediate access to.
“A typical benchmark for EUR cash returns is EONIA, which returned 0.23% during 2012. But through active cash management our EUR short maturity ETF returned net-of-fees 2.54% during the same period. Similar value can be found in USD and GBP markets.”
On winning the etfexpress award, Chan concludes: “We are delighted to have received this award which reflects our performance track record and the success of our European ETF business that we launched just three years ago.” n
Currently, PIMCO has seven fixed income ETFs on the PIMCO Source ETF platform. Four of these are “smart passive” ETFs. The other three are actively managed ETFs.
“When we launch an ETF we want to make sure that it’s one that adds value to a client’s portfolio and we can do that in two ways: through a smart passive ETF, where the benchmark index is designed to be smarter than traditional indices and offers smarter index replication based on economic risk factors and a forward-looking approach, or through an active ETF where we outright add value to the portfolio,” explains Howard Chan, ETF Portfolio Specialist at PIMCO.
One of the fundamental flaws of fixed income indices, says Chan, is that they are largely market cap-weighted. To passively track such an index, an investor essentially lends capital in proportion to a borrower’s level of debt; the more debt, the more lent.
“Lending officers do not lend based on how much debt you have outstanding. They lend based on income. We tried to find a methodology that reflects that in the market. What we came up with was the GDP-weighted index, where you lend based upon national income, versus the amount of debt outstanding a particular country has.
“Rather than a debt-weighted approach, we use an income-weighted approach.”
PIMCO offers a series of three GDP-weighted indices: Global Advantage Bond Index, Global Advantage Government Bond Index, and Global Advantage Inflation-linked Bond Index.
“For our European-domiciled ETF, we take the Euro component of the Global Advantage Government Bond Index. The same GDP-weighted approach is applied to the ETF that tracks our Emerging Markets Local Bond Index,” says Chan.
This has resulted in PIMCO assigning a higher weighting towards emerging
Howard Chan, ETF Portfolio Specialist at PIMCO
P iMCo
LYXOR The pOweR TO peRfORm
in anY maRkeTDESIGN Your INvEStmENt SoLutIoNS WItH
A LEADING SPECIALISED ASSEt mANAGEr
AlternAtive investments • etFs & indexing • multi-Asset investments • structured investments
* Figures as of 31st December 2012.
this material is intended for professional investors only and is not directed at retail clients. This advert is issued by Lyxor Asset Management (Lyxor AM), société anonyme à directoire et conseil de surveillance having its registered office at 17 cours Valmy, 92800 Puteaux (France), 418 862 215 RCS Nanterre, authorized and regulated by the Autorité des marchés financiers (AMF). Lyxor AM is represented in the UK by Lyxor Asset Management UK LLP, which is authorized and regulated by Financial Services Authority in the UK.
Lyxor asset management, a subsidiary of Societe Generale Group, was founded in 1998.
with over 600 specialists worldwide, Lyxor manages USD 99.4 Bn* of assets across four key areas: alternative investments, eTfs & indexing, multi-asset investments and Structured investments.
Our investment professionals deliver investment and advisory solutions for institutional investors in all asset classes.
with a strong culture of risk-management and research, Lyxor is a leader in innovative, transparent and flexible asset management.
Discover more at lyxor.com or email [email protected]
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Lyxor Asset ManagementBest emerging Markets equity etF Manager
Lyxor Asset Management, a subsidiary of Societe Generale, is one of Europe’s leading providers of Exchange Traded Funds with over EUR 30 billion in assets under management. Lyxor currently has more than 240 ETFs covering equity, fixed income and commodity indices. Lyxor provides an extensive set of Emerging Market ETFs including a number of listings on the London Stock Exchange.
Last year, investors continued to use a diverse range of products to gain exposure to Emerging Markets via global, regional and country equity indices confirms Claus Hein, Head of Institutional ETF Sales for the UK, Netherlands and Nordics at Lyxor Asset Management.
“For global access in one trade, the Lyxor ETF MSCI Emerging Markets provided significant liquidity whilst minimising tracking error against its benchmark over the period. The fund was ranked number one in 2012 in terms of performance versus competitors. At the regional level, we saw demand for ETFs covering Latin America, Asia ex-Japan and Eastern Europe. We also observed significant activity across our range of country EM ETFs, for example China, Russia, India, which are the largest in Europe for each respective market,” says Hein.
Lyxor Asset Management launched its first Emerging Markets ETFs back in 2007. Since
then, the product range has continued to expand to cover as many emerging markets as possible, providing investors with a broad set of tools with which to build their exposure in a liquid and transparent way.
As Hein continues: “The funds are actively traded across multiple exchanges in Europe and supported by various market-makers and authorised ETF participants. In terms of costs, our management fees are relatively low and we are able to provide tracking efficiency across our range of EM products. All in all, we believe investors appreciate these various qualities and we aim to continue delivering across all fronts going forward.”
With Europe steadily catching up with the US in terms of its investment community embracing the benefits of ETFs, the number of new products coming to market rises month on month. For ETF providers, it’s critical to find a competitive edge and leverage it fully to grow market share.
“We think it is critical to minimise overall implementation costs to maximise investors’ experience when investing in EM ETFs. As volumes keep growing and more clients increase their ETF usage, we will further develop our relationships with market makers and ETF Authorised Participants to ensure spreads and trading costs become even more competitive for EM products,” confirms Hein.
Performance and tracking efficiency, however, remain equally as important for investors when assessing one ETF product versus another, and at Lyxor, Hein emphasises that these remain “top priorities, particularly when evaluating EM exposures, which can be challenging to replicate in an effective way”.
On winning the etfexpress award, Hein concludes by saying: “We are delighted to receive the award for Best Emerging Markets ETF Manager in 2012. We would like to thank the voters for their support and recognition of our EM range which we will continue developing and strengthening in the future.” n
Claus Hein, Head of Institutional ETF Sales for the UK, Netherlands and Nordics at Lyxor Asset Management
lyxoR asset ManageMent
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the etF industRy today
(through end-February), total net inflows for ETPs stand at USD49.1billion.
It’s far too early to summise how the rest of 2013 will play out, but if equity markets are given the chance to trend, equity ETPs could be the real winners.
Even last year, equity ETPs dominated inflows by a factor of two. Whereas fixed income inflows stood at USD61.3billion for the year through November 2012, equity inflows were USD126.9billion. That equates to a healthy market share of 66.4 per cent. Geographically, North America dominates with just over 50 per cent market share. Perhaps more revealing is that Emerging Market equity ETPs have nearly twice the market share to that of Europe: 19.6 per cent compared to 10.4 per cent.
Within that context, Claus Hein, Head of Lyxor ETF Institutional Sales for the UK, Netherlands and Nordics at Lyxor Asset Management, confirms that Lyxor – winner of Best Emerging Markets Equity ETF Manager this year – has already had a positive start to the year “in terms of inflows and overall turnover across the EM range.
“Specifically, the Lyxor ETF MSCI Emerging Markets has been very popular as investors have been adding to their broad global EM allocations. The fund has raised about USD200million in net new assets year-to-date. Notably, there has also been activity in the four main BRIC country funds with China still being particularly attractive to many clients.
“On the Fixed Income side, investors are expressing interest for an expanded set of
EM Debt funds in addition to our existing USD-based product so we will continue to monitor this space,” confirms Hein.
One emerging trend for investors to keep track of within the ETF/ETP market, is the increased level of innovation being brought to bear by fund providers. ETFs, quite rightly, have long been viewed as merely passive products, constructed of a basket of securities that track an underlying index.
But whilst the role of traditional benchmark indices remains vital, it is no longer exclusive. Secondary indices, which offer slightly more tailored exposure, are providing enhanced returns. In addition, smart beta and actively managed ETFs – whose objective is to generate alpha like their hedge fund counterparts – are also gaining traction as the ETF market evolves towards offering more “value-added” strategies to investors.
One European ETF provider, in particular, leading the way in innovation, is Source: winner of three awards this year – Best Alternative ETF Manager/Most Innovative European ETF & North American ETP Provider. Among its suite of 86 ETPs, 14 of them fall into the value-added strategy bucket (11 of them are smart beta, three are alpha strategies).
Michael John Lytle, Chief Development Officer at Source, says that while Source will continue looking to increase the number of value-added products, it would only ever be done in proportion to the number it currently offers. “When you put on these value-added strategies, you do so in smaller numbers. They take a lot of work; you don’t just roll
5
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the etF industRy today
17
them out in batches. You have to go out and tell the story, do roadshows etc.
“We don’t plan to skew our offering into the beta plus and alpha space to the detriment of our primary and secondary benchmarks; these remain core to us. I think we could add more primary and secondary benchmarks in the fixed income space, for example. We currently have seven products and while we cover high yield bonds, active cash management strategies and select sovereigns we see opportunity to offer a wider spectrum of products.”
A great example of where innovation is taking place is precisely within the fixed income space. PIMCO – winner of this year’s Best Fixed Income (excluding cash) Manager
– has developed a suite of indices that better reflect the way the world has changed in recent years. Most fixed income indices are market capitalised-weighted, which simply means that investors end up allocating more to countries with the highest level of indebtedness.
What PIMCO has done is develop three GDP-weighted indices that provide investors with higher exposure to stronger countries – particularly Emerging Market countries like Brazil – whose debt to GDP ratios are much lower than those of developed countries.
The three GDP-weighted indices are: Global Advantage Bond Index, Global Advantage Government Bond Index, and Global Advantage Inflation-linked Bond Index.
Who wins when UBS ETFs win awards?
abWe will not rest
While winning awards may be good for UBS, it’s even more rewarding for our clients.
We are delighted that UBS Global Asset Management has been awarded ‘Best Europe Equity ETF Manager’, as well as many other specific awards recognising the quality of our
products, portfolio management and services.
But awards are simply not enough.
We never stop thinking about how to deliver the best ETF solutions to you. ETFs how you want them.
UBS ETFs replicate more than 75 indices, totalling over USD 13 bn in assets*. And we consistently launch new solutions to match the changing needs of globally-minded investors.
To find out more about UBS ETFs, please visit www.ubs.com/etf
For marketing and information purposes by UBS. For Investment Professionals only - Not for onwards distribution to retail clients. Past Performance is not a guide to future performance. The key symbol and UBS are among the registered and unregistered trademarks of UBS. © UBS 2013. All rights reserved. *Data as at 31 January 2013.
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UBS Global Asset Management
Best europe equity etF Manager
Last summer saw UBS Global Asset Management enter the UK ETF market with a bang. On 28 June 2012, 66 ETFs were listed on the London Stock Exchange; the largest single ETF listing in the Exchange’s history.
“The listing of 66 ETFs on LSE last year underscores our commitment to the UK market. Overall, we focus on four core European markets: Switzerland (SIX Swiss Exchange), United Kingdom (London Stock Exchange), Germany (Xetra) and Italy (Borsa Italiana). Across all markets, we saw positive net inflows in 2012. This confirms that we were justified in our decision to expand our distribution capabilities,” comments Clemens Reuter, Head of ETFs for UBS Global Asset Management.
Andrew Walsh, Executive Director and Head of UBS ETF Sales UK says that “while physically replicated products are still used by the majority of UK ETF-users, increased transparency and client awareness of the benefits of synthetic ETFs to deliver exposure to difficult to access underlying indices is a major attraction.” Walsh cites the UBS-ETF CMCI Composite (USD) SF-I as a good example of a swap-based product gaining a lot of traction amongst UK investors.
Currently, UBS Global Asset Management offers 46 ETFs on equity benchmarks, with Thomas Merz, Executive Director, Head UBS ETFs Switzerland & Liechtenstein adding: “In terms of inflows last year, emerging market and US equities were very popular, as were Canadian equities towards the end of the year.”
For Europe, specifically, Reuter notes that four Equity ETFs were particularly popular. These were: EuroSTOXX 50, MSCI Europe, MSCI EMU, and FTSE 100.
Aside from the solid performance of its
ETFs, UBS Global Asset Management has shown its innovative side in creating a dual share-class model: an “A” share class, and an “I” share class.
“Our ‘I’ share class offers a significant discount in management fees to all investors who invest large blocks. This class is the cheapest in Europe. Our ETFs perform very well with the combination of our strong expertise in passive asset management, our unique pricing structure and our excellent securities lending model, which provides our funds with additional revenues,” confirms Reuter.
Another key reason for UBS Global Asset Management’s success in the ETF market is that it has over 25 years of passive management experience. Says Merz: “We use heavily automated processes and I think that’s where we, as a large global asset manager, have a natural advantage; you need to be a precise passive manager to be successful in the ETF space.”
“It’s all about knowledge,” adds Reuter. “Our team knows exactly how to develop an ETF, be it physical or synthetic, while our dedicated ETF operations team ensures that there are no errors in the processing of our ETFs. When you have dedicated people working on one product segment, it makes it a very robust and high quality product.”
On winning the etfexpress award, Reuter comments: “With the largest ETF listings in the history of two major stock exchanges, we have demonstrated our commitment to bringing UBS ETFs to where our clients are – and in the way they want them. So while winning awards may be good for us, it’s even more rewarding to our clients. We are proud to be the winner of this award, which recognises the quality of our products, portfolio management and services.” n
Clemens Reuter, Head of ETFs for UBS Global Asset Management
uBs gloBal asset ManageMent
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SourceBest alternative etF Manager,
Most innovative european etF Provider & Most innovative north american etP Provider
Michael John Lytle, chief development officer at Source
the exposure to more highly indebted issuers; unsurprisingly, there’s a much greater weighting towards BRICs which as a group represented 50% of EM (or 20% of global) GDP in 2012 and are expected to increase to 27% of global GDP share by 2020*.
In the equity space, Source offers an equally innovative product: the Man GLG Europe Plus Source ETF. A long-only product, the “beta plus” element is derived from Man GLG’s unique relationship with brokerage houses, using the highest conviction BUY recommendations from equity analysts in order to trade systematically.
“The strategy harnesses the broker anomaly – there is value in broker recommendations. Man GLG has particularly strong and productive relationships with its brokers. In addition, asset managers typically fail to act immediately on broker recommendations; it may take them 20 days or more. By adjusting exposure promptly on the back of these recommendations, the Index captures more of the upside,” comments Lytle, confirming that the fund now has USD900million in assets.
Last year, Source unveiled the LGIM Commodity Composite Source ETF; a diversified, second generation broad-based commodity ETF with AuM of over USD175 million, but when asked about plans to add further value-added strategies in 2013, Lytle says: “We’re looking but we don’t intend to skew our offering to the detriment of our primary and secondary benchmarks.”
On winning the etfexpress awards, Lytle adds: “We’re very proud and grateful for this recognition from clients and the ETF community. The focus on innovation is, we feel, in keeping with where we at Source are dedicating our energies and have endeavored to differentiate ourselves.” n
*According to estimates from Goldman Sachs Economics, March 2013.
As one of Europe’s leading and most innovative ETF providers, Source continues to set new milestones. Last year, Source Physical Gold P-ETC attracted more net new assets than any of its competitors, adding over USD1.7billion (compared to USD1.2billion in 2011). Moreover, with USD7.6billion in turnover, SGLD was the second most traded ETP on the London Stock Exchange.
Source now manages in excess of USD13billion in assets. Of the 86 ETPs it offers investors, 25 of them each have over USD100million in assets.
Innovation is a key element to the firm’s ongoing success.
As well as providing 19 “primary beta” products such as the S&P 500, MSCI Europe, MSCI Emerging Markets, FTSE 100 etc, Source also offers a range of 53 products delivering beta returns from complimentary secondary benchmarks.
“Our approach to developing products has been to combine primary benchmarks that provide efficient beta exposure and secondary benchmarks such as small-cap indices, optimised sector indices, which round out our pure beta offering. We also offer 11 “beta plus” products and three products that target alpha (actively managed by PIMCO),” explains Michael John Lytle, chief development officer at Source.
Whilst some providers might think that developing ETFs is a simplistic exercise, Source is very much of the opinion that not all ETFs need be alike and that specialisation is valuable if offered in addition to a broad beta product suite.
Its partnership with PIMCO is a great example of innovation at work. The PIMCO EM Advantage Local Bond Index Source ETF, which launched in 2011, uses a smart passive approach to physically replicate index returns. The index itself is GDP-weighted rather than market-cap weighted, to reduce
souRCe
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State Street Global Services
Best north american etF administrator
State Street is the largest 3rd party provider of ETF services globally and the largest provider of actively-managed ETFs (as measured by assets under management). Our industry-leading global ETF servicing capability leverages a state-of-the-art “cloud-enabled” platform, providing full integration to core technology, end-to-end automation and full client transparency via an ETF dashboard.
As the first global custodian to service ETFs in Australia, Hong Kong, Luxembourg and the United States and the only provider servicing each of the major ETF markets (Asia-Pacific, Canada, Europe and the United States), State Street’s institutional knowledge and breadth of experience assists our client launch of new funds, and provides individually customised solutions while ensuring that ETFs are serviced accurately and efficiently. State Street deploys a team of experts to support the launch of new asset managers as they enter into the ETF market. Our broad, global capabilities include:
ETF Launch services: Offering consultative services ranging from general ETF education, operational flow analysis and the preparation of regulatory, oversight and exchange listing documents, our team of servicing professionals supports your organisation, ensures successful fund launches and delivers ongoing operational guidance. We also leverage dedicated and experienced ETF project managers.
Basket creation calculation and dissemination: State Street services include receipt of PCF data, daily creation and dissemination of baskets to all applicable parties and generation of basket trade instructions.
Dedicated AP relationship management: State Street provides a dedicated ETF servicing team to provide an unparalleled level of support to Authorised Participants. Understanding the importance of these
relationships to the success of an ETF, our strong relationships with APs will ensure that they receive the highest level of service available.
Web-based orders: Authorised participants can create and redeem ETFs via our web-based portal, streamlining trading and approvals. Designed as a single-point of access to multiple ETF sponsors, the portal provides direct access to global ETFs in multiple currencies through a single interface supplying a direct link between market makers, distributors, transfer agents and sponsors. The portal supports all applicable order types used in the market today.
Transfer agent: Once an ETF is created or redeemed, we execute and reconcile distribution payments to clearing houses and ensure ETF units are reconciled to the local depository.
ETF Client Dashboard: Our information delivery solution on my.statestreet.com provides near real time views of the ETF processing lifecycle, authorised participant order information, thought leadership and consolidated ETF reporting.
Industry intelligence: As a premier provider of ETF services globally, we provide our clients with market and regulatory updates, statistics, trends and news via a monthly ETF newsletter and a quarterly perspective report.
Core accounting and custody: We leverage our robust global accounting platform to provide full accounting services, as well as specialised ETF processing. Our global operation centers and local legal and regulatory expertise ensure 24 / 7 worldwide custody support for ETF servicing.
Fund administration: As part of our fund administration services, we offer support for applicable regulatory matters including treasury services, compliance monitoring, financial reporting, tax and legal services and trustee services. n
Frank Koudelka, Senior Vice President – ETF Product Specialist, State Street Global Services
state stReet gloBal seRv iCes
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STOXXMost innovative index Provider
STOXX Limited won the etfexpress award for Most Innovative Index Provider again this year, making it the first company in the industry to win the accolade for the fourth consecutive time.
“We introduced many indices in 2012, spanning various risk-based approaches to the managed futures space to other strategies. We also introduced indices for new global regions, expanding for example our footprint in China,” confirms STOXX Chief Executive, Dr Hartmut Graf.
Investors’ search for alternative beta continued last year, prompting STOXX to offer products aimed at risk.
STOXX’s Minimum Variance family, introduced in May, is a first-of-its-kind, based on a sophisticated methodology and a fundamental factor model provided by Axioma. The indices are designed to minimise risk by reducing the volatility of the underlying index. Two versions of each index are available, with the constrained version optimising the benchmark index with respect to volatility, offering investors an improvement over the benchmark. The unconstrained version, a novelty in the index world, provides a strategy index minimised for volatility that is not restricted to follow a specific benchmark too closely.
The EURO iSTOXX® 50 Equal Risk index, released in June, offers a risk-balanced blue-chip representation of supersector leaders in the eurozone. The objective of the equal risk portfolio is to find a risk-balanced allocation such that the risk contribution of each asset in the portfolio is equal. This avoids a concentration in specific risk.
The STOXX® Low Risk Weighted indices focus on stocks that have displayed the greatest price stability in the past year and represent the least volatile companies in a respective benchmark. The index family was launched in October.
In September of 2012, STOXX expanded its Global Index family with the launch of 1,200
supersector, size, regional and total market indices covering global equity markets. The company also launched the STOXX® China A, China B, China H and China Red Chip Total Market indices, offering international as well as domestic Chinese investors a first set of transparent and rules-based indices for the world’s second largest economy.
In May of last year, STOXX also expanded its ESG index family for sustainable investing, releasing regional STOXX® ESG Leaders blue-chip indices for North America, Asia/Pacific, Europe and the e`urozone, which represent companies that are global leaders in terms of environmental, social and governance criteria.
The indices are the first sustainability indices with full transparency over the selection method and scores used, essentially eliminating subjective elements from selection. In keeping with its mission of providing investors with innovative products during difficult economic times, STOXX introduced the iSTOXX® Efficient Capital® Managed Futures 20 index in December of 2012.
The index is the first benchmark for the Managed Futures space and exhibits a lower overall correlation to traditional asset classes such as stocks and bonds.
Also in December, the company launched the STOXX® Global 1800 EM Exposed index, allowing investors to gain emerging markets exposure by buying shares of companies listed in developed markets, which generate 33 per cent or more of their revenue outside of developed markets.
STOXX celebrated its 15th anniversary in February 2013. The company’s index expansion in 2012 and the years before shows it has grown from a European specialist to a global expert.
On winning the etfexpress award, Graf comments: “This is an honor and provides evidence that the market values our innovative products, even during tough economic times.” n
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In addition, PIMCO has developed three actively managed ETFs – available in USD, GBP and EUR – that are designed to help investors overcome the challenges of cash management at a time when holding cash has become an expensive exercise.
“For cash that clients don’t need to use for up to six months we actively invest in low duration investment grade securities with an average maturity of less than three years. We can buy and rotate through a range of different short-term instruments to ensure that yields remain positive. For instance, through careful security selection, exposure to state-run agencies that are explicitly government-guaranteed can offer additional yield from a liquidity premium without sacrificing quality.
“A typical benchmark for EUR cash returns is EONIA, which returned 0.23 per cent during 2012. But through active cash management, our EUR short maturity ETF returned net-of-fees 2.54 per cent during the same period,” explains Howard Chan, ETF portfolio specialist for PIMCO.
Another key area of innovation for ETFs is pricing. With so many providers out there, being able to offer a cheaper Total Expense Ratio than one’s competitors is vital. This is something that firms like Source are all too aware of – its Source Physical Gold ETC is now one of the most liquid and cost-efficient products with a 0.29 per cent annual fee.
UBS – winner of this year’s Best Europe
Equity ETF Manager – has developed a dual share class model to tackle the cost issue. The A-share class model is priced like all other ETF products in the market. By comparison, the unique I-share class model is aimed more at institutions who buy large blocks of ETFs, and who can now enjoy a large discount in management fees.
Explains Clemens Reuter, Head of UBS ETFs: “We are the cheapest in Europe, which also comes through in the performance of the product. Our products perform well on the portfolio management side, they have a unique pricing structure due to our dual share class model, and on top of that we have an excellent security lending model which provides our funds with additional revenues.”
UBS certainly made a big splash when it listed 66 ETFs on the London Stock Exchange last June; the largest ever ETF listing on the exchange. Across all markets, UBS enjoyed positive net inflows in 2012. This, says Reuter, “confirms that we were justified in our decision to expand our distribution capabilities and confirms that our thinking was correct”.
UBS offers 46 ETFs on equity benchmarks, and for the vast majority of them this dual share class model is available to investors. Given the firm’s long track record in passive management, it is unsurprising that UBS moved into the ETF market several years ago.
“We use heavily automated processes
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Northern TrustBest european etF administrator
by ETF provider, Source, in partnership with Legal & General Investment Management.
As an ETF service provider, Northern Trust has ensured that its solutions and systems are to the forefront of any challenges that may emerge. “During 2012 we upgraded our ETF infrastructure delivering a ‘one-stop-shop’ technology solution dedicated to ETFs, which integrates core processing systems within Northern Trust and monitors the entire ETF deal lifecycle,” explains Fiona Moore, Northern Trust’s Head of ETF Fund Administration Europe.
Having been at the cutting edge of the European ETF market since its origins in 2000, Northern Trust has assembled the most experienced team of ETF administration specialists available in the market says Heffernan, who adds: “They provide the highest quality advice to our clients and ensure even the most complex products are brought to the market quickly and efficiently. We thrive on complexity – that’s what makes us different.”
Indeed, experience, knowledge and expertise lie at the heart of the firm’s market leadership position. It knows what is needed to achieve success in the ETF industry, enabling it to design servicing models for its clients to fit their needs in today’s fluctuating market environment.
“Servicing underpins all aspects of our model incorporating a tailored approach for investment managers, Authorised Participants and investors. Our commitment to the ETF industry and development of market solutions backed up with (state of the art) infrastructure ensure we support our clients’ ETF strategies with a holistic vision,” comments Moore.
On winning the etfexpress award, Moore concludes by saying: “We are delighted to win the award again this year, which serves as a recognition of our unrivalled experience, expertise and commitment to the ETF industry.” n
Northern Trust’s focus on supporting its diverse client base to navigate industry challenges and opportunities over the past 12 months has culminated in being voted ‘Best European Administrator’ for the second year running at the etfexpress Global Awards 2013.
“2012 was an exciting time for Northern Trust’s ETF business,” says Paul Heffernan, Northern Trust’s Head of Business Development, ETF Fund Administration Europe. “We launched new and innovative products with clients, expanded into new markets and increased our client base. The conclusion of the ESMA consultation was a welcome development for the wider ETF industry and this has delivered some certainty to the market, which we believe bodes well for our continued success in 2013.”
Northern Trust has been providing award winning fund administration solutions for European ETFs for more than 10 years. It supports physical, synthetic and hybrid ETF models, including both cash and in-specie dealing methodologies for a broad range of global assets, including equities, fixed income, real estate, infrastructure, listed private equity, regional and sector specific ETFs.
Currently, the firm supports in excess of 1,000 primary market deals a month.
2012 certainly ended well for Northern Trust. In line with its focus on offering innovative ETF administration solutions, Northern Trust acted as administrator and custodian for National Bank of Abu Dhabi as it made a series of enhancements to the region’s first ETF, including moving from swap based replication to physical replication. The renamed NBAD OneShare MSCI UAE ETF is the first ETF of its kind in the Emirate.
Another success, was the appointment as administrator to the innovative LGIM Commodity Composite Source ETF, launched
Paul Heffernan, Head of Business Development, ETF Fund Administration Europe at Northern Trust
Fiona Moore, Head of ETF Fund Administration Europe, Northern Trust
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Flow Traders is a global and independent ETP market-making firm. Founded in 2004 in Amsterdam, Flow Traders today has major trading operations in Europe, Asia-Pacific and the US. With a team of over 170 professionals, of which more than 60 are traders, Flow Traders provides continuous liquidity for ETFs, ETCs & ETNs on all major exchanges and trading venues worldwide.
To maintain its position in the market, Flow Traders requires access to the right information, as fast as possible, and the ability to respond instantly to market movements. The Flow Traders group has built its own unique state-of-the-art software that allows it to calculate, quote and react in real-time to any price movement on any global exchange. With more than 75 stock exchange memberships worldwide, Flow Traders has access not only to the broad spectrum of global ETF products but also to any available future, stock or other hedging vehicle. This, along with Flow Traders’ proprietary infrastructure and software, allows it to operate 24 hours a day across four continents.
Bernardus Roelofs, Global Head ETF Sales Trading at Flow Traders, tells etfxpress: “Since the start, we have been committed to providing liquidity and helping asset managers and investors with quality on-exchange execution.”
Thanks to this dedication, Flow Traders has become the leading ETF liquidity provider and supporter of the ETF industry, both in Europe and Asia-Pacific. Says Roelofs: “Our ETF sales traders in Amsterdam and Singapore can provide institutional investors directly with highly competitive bid-offer prices on an OTC basis for any ETF & ETC from all issuers and with reference to all major exchanges world-wide, including pre-market and after-close trading.”
The team is in close contact with asset managers and supports them with the selection of ETFs, as well as imparting its collective knowledge on when best, and how, to trade. With the number of ETFs continuing to increase worldwide, the different structures, fees, TERs, tracking errors and all the various trading venues means that having this know-how has never been more vital.
“At Flow Traders, our independence and focus is highly recognised. This helps asset managers a lot with time-consuming analysis. In addition, they get the prices directly from the market maker and do not have to go through a broker who charges them a commission; lower costs equals better performance!”
The trend of investors (long-only asset managers, private banks, pension funds, etc.) contacting ETF market makers directly for quotes will continue as participants seek to trade with the source of liquidity, in Roelofs’ opinion. Trading OTC enables participants to negotiate terms in a flexible fashion with respect to settlement details, including dates, depot and currency. This saves costs, results in better pricing and, ultimately, better performance of their investments. Most institutional investors recognise that trading ETFs OTC allows them to benefit from the market maker’s ability to leverage on-exchange liquidity. More than two-thirds of the total ETP volume in Europe and Asia-Pacific is traded OTC.
On winning the etfexpress award, Roelofs comments: “We feel honored that so many market participants voted for us and are delighted that we have won these two awards. It truly shows that the market recognises our commitment to liquidity, our competitive prices, and the dedication of our company within the ETF industry.” n
Flow TradersBest european & Best asia Pacific Market Maker
Bernardus Roelofs, Global Head ETF Sales Trading at Flow Traders
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on when best and how to trade. With the increasing number of ETFs worldwide, the different structures, fees, TER, tracking errors and all the various trading venues, this know-how is ever more vital,” adds Roelofs.
For Europe in particular, the ETF market remains an exciting and vibrant place. The opportunities for providers are huge. But with so many products to choose from, providers have to continue to push the envelope: be that through offering niche strategies, access to new markets, low TERs, working with more Authorised Participants, developing “value-added” strategies that move away from pure passive investment.
But ETF providers should, at the same time, not get too carried away. In Europe, there remain a huge number of investors who still don’t understand ETFs and have never invested in them. With the introduction of the Retail Distribution Review in the UK, which removes fee commissions, the idea is that independent financial advisers will start looking beyond products they sold historically.
Deborah Fuhr, founder of ETFGI – winner of this year’s Best ETF Research Provider – comments: “There’s still a large need for education among investors on the benefits of ETFs.”This, she says, could well result in the more plain vanilla, easy to understand ETF products, attracting further inflows in 2013 and beyond, as investors become more familiar with the market.
“The first place many investors choose to invest is in physical gold so I would expect to see continued inflows into physical gold products going forward.” n
and I think that’s where we, as a large global asset manager, have a natural advantage; you need to be a precise passive manager to be successful in the ETF space,” adds Thomas Merz, Executive Director, Head UBS ETF Switzerland & Liechtenstein.
Lyxor’s Hein adds a further comment in relation to costs, using Emerging Market ETFs as an example: “We think it is critical to minimise overall implementation costs to maximise investors’ experience when investing in EM ETFs. As volumes keep growing and more clients increase their ETF usage, we will further develop our relationships with market makers and ETF Authorised Participants to ensure spreads and trading costs become even more competitive for EM products.”
Indeed, the role of market makers cannot be understated. With such an enormous variety of products and asset classes within the ETF market, providing the necessary liquidity – which in turn helps keep bid-offer spreads as tight as possible – is one of the most important underlying functions.
Firms like Flow Traders – winner of this year’s Best European and Asia Pacific Market Maker – are focused on providing institutional investors with highly competitive bid-offer prices on an OTC basis for any ETP, “from all issuers and with reference to all major exchanges world-wide, including pre-market and after-close trading”, comments Bernardus Roelofs, Global Head ETF Sales Trading at Flow Traders.
“The team is in close contact with asset managers and supports them as well with the selection of ETFs and knowledge sharing
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