ETFs Link & learnMay 18, 2017
2© 2017 Deloitte
Jack LeeDirector – Financial Services Audit and EMEA ETF LeadDeloitte IrelandE: [email protected]: +353 1 417 2467
Seamus KennedySenior Manager – ETF Tax ExpertDeloitte IrelandE: [email protected]: +353 1 417 3637
Derina Bannon
Manager
Legal and Regulatory ETF Expert
Deloitte Ireland
T: +353 1 417 2637
Guillaume BrousseDirector– Audit and EFT LeadDeloitte LuxembourgE: [email protected]: +352 451 452 279
Speakers
3© 2017 Deloitte
01 Growth of ETFs in Europe
03 Tax Landscape for ETFs
Agenda
04 The future for ETFs
What’s next - new generation
of products
02 ETFs themes in governance
4© 2017 Deloitte
Growth of ETFs in Europe
5© 2017 Deloitte
European ETF asset growth as at Feb 2017
ETF Landscape
ETFs have witnessed a significant growth in past years due to:
• Diversification of market risk in a single vehicle
• Very competitive cost structure
• Mostly well regulated
• Wide product range and underlying products
• Strong liquidity resulting in narrow spreads
• Ability to deal intra day
6© 2017 Deloitte
European ETF - Largest listing markets VS largest domicile
ETF Landscape
• Wide difference between domicile and listing places.
• Ireland and Luxembourg are clearly domicile of choice
• UK and GE are clearly listing countries
• France is listing French domiciled ETF
• Swiss and Italy are listing local products and foreign ones.
7© 2017 Deloitte
Sept-16 net new assets by exposure type (US$m)
YTD net new assets by exposure type (US$m)
• Net inflows of US$2,983m.• Three largest inflows:
• Fixed income - US$1,153m• Equity - US$1,037m; and• Commodities - US$667m.
• Largest net outflows - Active - US$53m.
• YTD net inflows of US$41,542m.• Three largest inflows:
• Fixed income - US$26,498m;• Commodity - US$12,154m, • Leveraged inverse - US$1,229m,
• Largest net outflows YTD – Active - US$110m.
# flows US$m # flows US$m
-500
-
500
1,000
1,500
2,000In
vers
e
Active
Mix
ed
Levera
ged I
nvers
e
Curr
ency
Levera
ged
Altern
ative
Equity
Com
moditie
s
Fix
ed I
ncom
e
Net Inflows Sept-16 (US$m)
-2,000
3,000
8,000
13,000
18,000
23,000
28,000
Invers
e
Active
Mix
ed
Levera
ged I
nvers
e
Curr
ency
Levera
ged
Altern
ative
Equity
Com
moditie
s
Fix
ed I
ncom
e
YTD net inflows (US$m)
ETF Landscape
ETFs by asset class: Europe
8© 2017 Deloitte
ETF providers by assets: Europe
Top 5 providers with new ETFs launched in 2016• SPDR ETFs - 21• BNP Paribas - 18• db x/db ETC - 17• UBS ETFs – 13• Lyxor AM - 13
# Assets US$m # ETFsProvider
Assets (in US$ Million)
Sept-16 # ETFs % Market
Share
NNA (US$ Mn) YTD
2016
# New ETFs
Launched
iShares 266,040 287 47.3% 25,275 12
db x/db ETC 61,241 217 10.9% - 2,136 17
Lyxor AM 51,976 222 9.2% - 437 13
UBS ETFs 29,993 135 5.3% 1,883 13
Amundi ETF 23,827 102 4.2% 1,433 5
Vanguard 23,002 21 4.1% 2,997 4
Source 22,019 82 3.9% 1,576 6
ETF Securities 19,347 360 3.4% 5,015 1
SPDR ETFs 17,478 100 3.1% 3,761 21
Commerzbank 8,375 115 1.5% 404 2
Deka 8,242 43 1.5% 489 0
ZKB 7,863 4 1.4% 468 0
HSBC/Hang Seng 5,187 27 0.9% - 493 0
BNP Paribas Easy 4,668 41 0.8% - 134 18
XACT 3,097 13 0.6% 359 3
Swiss & Global 2,439 16 0.4% 182 0
PowerShares 2,349 20 0.4% 461 4
Ossiam 2,075 10 0.4% 9 1
Think ETFs 1,833 14 0.3% 2 1
Societe Gen 1,096 20 0.2% 289 0
-
50
100
150
200
250
300
350
400
-
50,000
100,000
150,000
200,000
250,000
300,000
iSh
are
s
db
x/d
b E
TC
Lyxo
r A
M
UB
S ET
Fs
Am
un
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TF
Van
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Sou
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ETF
Secu
riti
es
SPD
R E
TFs
Co
mm
erz
ban
k
Dek
a
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HSB
C/H
ang
Sen
g
BN
P P
arib
as E
asy
XA
CT
Swis
s &
Glo
bal
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wer
Shar
es
Oss
iam
Thin
k ET
Fs
Soci
ete
Gen
Chart Title
Assets (in US$ Million) Sept-16 # ETFs
ETF Landscape
ETF providers by assets: Europe
9© 2017 Deloitte
Average Total Expense Ratio
• Average expense ratio of 31 bps. • Cheapest products track fixed
income indices at 26 bps• Most expensive are alternative ETFs
at 77 bps.• 48 ETFs with an expense ratio less
than 10 bps• 43 ETFs with an expense ratio
greater than 80 bps.
Average TER (bps)# Assets US$bn # ETFs
0
50
100
150
200
250
300
350
400
450
0
20
40
60
80
100
120
140
160
180
0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80+
TER (bps) 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80+
#ETFs 48 347 399 262 185 144 101 37 43
ETF assets (US$ Bn) 56 161 83 94 63 28 15 11 3
Asset class ETFs
Equity 32
Fixed Income 26
Commodities 44
Alternative 77
Mixed 65
Active 34
Inverse 32
Leveraged 46
Leveraged Inverse 42
All 31
ETF Landscape
Total expense ratios: Europe
10© 2017 Deloitte
ETF Operations and type of strategies
Simple but complex
11© 2017 Deloitte
Unique to an ETF
Could bea regular fund
ETF Definition
ETF Operations and type of management styles
Listed and traded on exchanges like stocks on a secondary basis as well as utilising a unique
creation and redemption process for primary transactions
The investment objective of most ETFs is to generate returns that closely correspond to the
performance of an established index (tracker fund)
Listing on a stock exchange with the legal structure of a Fund
Secondary market: no subscription fees, no sales charges upon purchase/lower cost but investors
pay brokerage commissions to buy or sell
Primary market: Large institutions create/redeem shares through “in-kind”
transactions
Open-ended funds providing daily portfolio transparency
12© 2017 Deloitte
Management styles
ETF Operations and type of management styles
PHYSICAL REPLICATION
SYNTHETIC
REPLICATION
Investment in a basket of shares + gain of the index
performance through derivatives (SWAPS)
Investment in all or portion of the shares of the
benchmark and on going adjustments to ensure
adequacy
13© 2017 Deloitte
Physical vs synthetic
ETF Operations and type of management styles
• After the economic crisisgrowth in AuM of SyntheticETFs was almost stabilised.
• The growth in AuM ofPhysical ETFs increasedsubstantially since 2011
• In 2017 approximately 80%of European ETF AUM isrepresented by syntheticreplication
• There are more Syntheticthan Physical ETFs
• Since 2012 the number ofSynthetic ETFs decreased,whereas the number ofPhysical ETFs increasedsteadily
14© 2017 Deloitte
Drivers for Growth in ETFs
ETF Operations and type of management styles
DIVERSIFICATION
LOW COST
LIQUIDITY
TRANSPARENCY
TRADING
FLEXIBILITY
TRACKING
15© 2017 Deloitte
Governance and ETFs
Themes in Governance
16© 2017 Deloitte
Overview
Governance and ETFs
• Good governance can add value as it enables stakeholders to have confidence in the decision-making processes and management of ETF. To foster market confidence it is important that ETF Boards ensure that investors are protected while encouraging innovation and investment in an increasingly complex, uncertain and ever-changing market
• Exchange Traded Funds (‘ETF’ market) have grown in both complexity and popularity as an investment option
• Heighted attention on the area of governance – WHY ?
• The landscape has evolved and developments such as globalisation, digitisation, innovation and regulation are contributing to a changing market and are shifting risk profiles.
Fiduciary
Stewardship
17© 2017 Deloitte
New Waves of Regulation
Governance and ETFs
1. European Union Fourth Anti-Money Laundering Directive is the European Union’s most recent response to the threat of the financial system being used for money laundering and terrorist financing purposes. It sets out a risk based approach and detailed framework which ETFs must comply with to effectively manage their money laundering and terrorist financing risks. It is increasingly common for Boards to undertake training on AML/CTF to ensure that they are aware of the requirements and responsibilities under this regulation. ETF Boards will not be able to rely on third parties to conduct elements of customer due diligence, and will need to ensure and evidence effective on-going monitoring of investor transactions. Member states must implement the directive into domestic legislation by June 2017
2 General Data Protection Regulation (“GDPR”) is directly applicable in EU member states and is due to come into force in May 2018. It will both update and overhaul data protection law. The new regulation aims to remove red tape for businesses but also tighten privacy protections for online users. Practically speaking, this means that boards of ETF fund companies and asset managers will have to proactively plan their strategies to deal with the new requirements and obligations under the GDPR. Fines of up to 4% of global turnover (or €20 million –whichever is higher) will be imposed for breaches. Boards and Audit Committees will need to understand their new roles and the responsibilities created, in addition to compliance requirements and privacy risks. ETF Boards must ensure effective oversight of these areas is fully embedded into their governance structure.
2 examples
The level of local and European regulatory pressure is set to remain intense. As a result, regulation should continue to remain high on board agendas, with focus on a number of new regulatory developments :
18© 2017 Deloitte
New waves of regulation : the tide shows no sign of turning
Governance and ETFs
Aside from Boards getting to grips with specific new regulations.
They will also need to ensure that they fully understand the global and local regulatory landscape
Theassociated risks
And how they will impact the ETF market.
Managing regulatory cost
And dealing with regulatory constraints are expected to be part of long journey ahead in 2017 and should be a key consideration for Boards
19© 2017 Deloitte
Evolving Board responsibilities and demonstrating execution of these responsibilities should be a key priority for Boards going forward
Governance and ETF’s
Boards are not only expected to focus on their traditional fiduciary responsibilities such as monitoring performance, risk and compliance, they must also effectively provide effective stewardship through helping shape and advise on areas such as culture, innovation and cyber security.
Innovation ETF Boards are tasked with overseeing the operation and suitability of new and innovative ETFs. This should include shaping and supporting the development of more active ETFs products in response to investor appetite and in line with the pace of technologic change. For example, FinTech, which provides data analytics to produce product comparisons and online distribution platforms.
Cyber Security This new technology and innovation bring market opportunities. They also present new risks, such as cyber security risk, which continues to be an area of focus for regulators throughout the EU. While the applicability of some of the measures to mitigate these risks will depend on the structure and set up of the ETF, ETF Boards should ensure that they understand the cyber security risks and controls in place, both at an internal and external third party level, are effectively overseeing them.
Culture Regulators are interested in Board
oversight of culture. For an ETF Board, this will include the culture
within the ETF and its service providers, particularly the
investment manager, and how this culture is promoting and protecting
investors’ interests.
While a critical role of EFT Boards relates to its role as monitor of
legal and fiduciary duties, this role
is changing..
20© 2017 Deloitte
As we see the complexity of ETF products increase and different areas of the market open, the risk profile of ETFs are undoubtedly increasing.
Continued focus on the protection of investors and effectively understanding and overseeing risk in the context of the ETF market .
All risks all need to be considered and given equal attention :
• exposure to complex strategies and competition as the market expands,
• as well as the risk profile of the underlying securities.
• outsource risk relating to service providers The key to effective oversight of risk is the implementation of an effective governance framework which enables the Board to make intelligent risk decisions while protecting the interests of investment fund investors
Overseeing Risk : A Key theme for ETF Boards
Governance and ETFs
A Key theme for ETF Boards and the key to effective oversight of risk is the implementation of an effective governance framework which enables the Board to make intelligent risk decisions while protecting the interests of investment fund investors
21© 2017 Deloitte
Enhanced Accountability
• Investors are reiterating the premise that ETF Boards should be accountable to their shareholders, and are actively seeking engagement on a number of topics such as the composition of the board. Investor engagement is equally important for passively managed funds, which accounts the majority of ETFs, as well as actively managed funds.
• We are also seeing legislation and regulation being used as a tool to enhance accountability. For example, in Ireland the introduction of a Directors’ Compliance Statement under the Companies Act 2014 requires Directors to acknowledge responsibility for ensuring compliance with relevant obligations under the Act to include: tax, serious market abuse offences and serious prospectus offences. This requirement is of direct relevance to ETFs which are established as PLC’s under the Irish UCITS Regulations.
Increased transparency
• Transparency is a key principle of good governance and ensures that all stakeholders are well informed about the fund’s activities, future strategies and any associated risks..
• Disclosure is a key mechanism for promoting the sharing of relevant and timely information to investors.
• The Disclosure Guidance and Transparency Rules require ETFs listed on the main market of the London Stock Exchange (‘LSE’) to include certain corporate governance disclosures, such as description of the main features of the internal control and risk management systems in relation to the financial reporting process.
• In addition, the Financial Reporting Council’s (‘FRCs’) 2014 Code of Corporate Governance (the ‘Code’) introduced changes to disclosure in three principal areas: going concern and longer term viability; risk management and internal control; and remuneration and shareholder engagement. There have been limited updates to the 2016 Code as the FRC expressed views that there is still further work to do regarding enhancing the disclosures relating to the 2014 Code. EFT Boards listed on the LSE, or Main Securities Market in the Irish Stock Exchange, will need to review their disclosure across these areas to understand any aspects that can be improved.
Governance and ETFs
22© 2017 Deloitte
Key takeaways
Governance and ETFs
1
2
3
4
5
ETF Boards need to ensure that they are being provided with frequent and comprehensive regulatory updates, and undertaking training on regulatory matter throughout the year.
To ensure effective understanding of risk they should be conducting an extensive risk review on an annual basis to identify the risks attached to the ETF itself, as well as the risks attached to the servicing or operation of the ETF, and assigning ownership of each risk. These risks should be monitored by the Board regularly through the year.
Board agendas and forward plans need to evolve to cover all evolving Board responsibilities. Topics such as cyber risk and culture should feature as standalone agenda items at least once per year. Alongside this, Boards should be receiving high quality information to enable robust discussion on areas such as risk management, investment strategy, innovation and culture.
There should be a cyber security policy in place that is monitored by the Board on an on-going basis.
Boards should be clear on the type and level of communications with stakeholders and ensure that they have effective mechanisms in place to engage with investors on key topics.
6The quality and level of governance disclosure in Annual Report and Accounts is an area that we believe requires improvement
23© 2017 Deloitte
Tax Landscape for ETFs
24© 2017 Deloitte
ETFs & Tax - The Perfect World
The Tax Landscape for ETFs
Perfect
WorldAccess to
Double Tax
Treaties –
reduced
rates of WHT
/ Exemptions
from CGT
No tax at the
level of the
ETF
No
withholding
tax on
payments
from the ETF
to investors
25© 2017 Deloitte
3. At fund level:
• Tax structuring/advice
• Tax compliance/filing
• VAT
• Country by Country Reporting
1. At investor level: 2. At investment level:
• Monitoring and calculation of capital gains and tax exposure on a daily, monthly or quarterly basis (FIN 48 / ASC 740-10)
• Preparation of transfer pricing documentation and transfer pricing guidelines
• Internal guidance and controls to address and confirm whether an uncertain tax position exists;
• Preparation of a return of income and filing
• Considering the taxation of sale transactions
• Preparation and filing of tax statements to tax authority or custodian
• Stamp duty and other potential tax liabilities
• Tax reclaims
Daily tax Tax registration Annual tax Ad-hoc
Austria - OeKB DDIDistributionreporting
Belgium B-TISRuling upon
requestStreaming (FCP) Subscription Tax
Chile - - - Asset test
Denmark - Application Reportable Income -
France - -PEA / Taper relief
/couponnage-
GermanyAKG I, AKG II,
IG, ZGWM-Daten
DDI §5, §18 and §19, ADDI
Distributionreporting
Italy - -IRRP/ Capital vs.
income splitInheritance
Norway Asset Test - Asset test SSA
Sweden - SKV 2745 KU Forms -
Switzerland - - Muster reporting -
UK Equalisation Application Excess RI Asset Test
U.S. Computation8865 (CTB) / EIN / State
PFIC / K1 / FIN 48
Investor Reporting
ETFs & Tax - The Real World
The Tax Landscape for ETFs
26© 2017 Deloitte
The reformed German Investment Tax Act Main categories of funds as of 1st of January 2018
The Tax Landscape for ETFs
Out-of-Scope of the revised German Investment Tax Act – General German tax law
applicable
Tax transparency
Investment funds (mutual funds) – article 1 section 2
of the draft law
Investment funds (special funds) – just open to up to 100 institutional investors (article 26 of the draft law)
Funds under the legal form of a partnership (Non-
UCITS)
Opaque taxation system
No annual & daily
reporting
%-rate for exemption purposes
Daily and annual reporting required
27© 2017 Deloitte
The Tax Landscape for ETFs
The reformed German Investment Tax Act - Overview
Special Investment Funds
• Basically, Special Investment Funds are subject to German corporate tax like Investment Funds
• A Special Investment Fund can however opt for tax transparency and continue the current taxation system with however significant modifications Attribution of income and expenses to the German
investors on a pro rata temporis basis Stringent requirements as regards the composition of
distributions New definition of the deemed distributed income New rules in relation to the computation of the daily tax
reporting figures Introduction of a new daily tax reporting figure
(Fonds-Teilfreistellungsgewinn)
Investment Funds
Level of the Investment Fund• German and non-German Investment Funds are subject to
German corporate tax with the following types of income German sourced dividends and equivalents German sourced real estate income and gains
• In the case of certain eligible investors, the InvestmentFund can enjoy a tax exemption (complex procedure)
• Full exemption from German corporate income tax possibleif the terms and conditions of the Investment Fund rule thatsolely tax-exempt investors are entitled to invest
Level of the investor• Investors are taxed on (i) distributions, (ii) the pre-lump
sum amount and (iii) on capital gainsfrom the disposal of investment units
• A partial tax exemption rate can apply, depending on the investor type and investment strategy
• The applicability of the partial tax exemption rates dependson the ongoing investment of the Investment Fund pursuantto its constitutive documents
The reform of the GITA introduces two independent taxation systems:
• Investment Funds (e.g. ETFs): opaque taxation system
• Special Investment Funds: option to continue the principle of tax transparency
28© 2017 Deloitte
The reformed German Investment Tax Act
The Tax Landscape for ETFs
Most important tasks
• Review and revise constitutive documents in order to make sure that partial tax exemption rates apply
• Monitor the portfolio of the Investment Fund in order to make sure that German corporate tax returns are prepared and filed with the fiscal authorities where necessary
• Apply for status certificate to benefit from a reduced German WHT rate incl. management of WHT
• Explore whether or not there is a need to implement a process for the partial exemption of the Investment Fund from German corporate tax
• Review whether or not it is reasonable to launch Investment Funds and share classes respectively which can enjoy a full exemption from German corporate tax
Team involved:
• Sales ;
• PM;
• Legal;
• Operations;
• Products
29© 2017 Deloitte
Brexit – Implications for Asset Managers
The Tax Landscape for ETFs
• On Brexit, the UK will likely lose the ability to passport management and distribution functions into Europe
• Alternative jurisdictions considered will depend on existing commercial structures and operations – both for funds and corporate group activities
• Tax will likely follow regulatory considerations
Comparison of tax rates and regimes
• Tax authority attitudes
• FS specific taxes
• Rules on employee benefits (e.g. pensions) and remuneration
• Cost of moving vs ongoing tax cost
Selection
• Define optimal final structure
• How to move (CBM, TOGC)
• Substance requirements
• Impact on employees – tax and policy design and reward structures
Implementation
• New intercompany agreements
• Branch / sub registrations
• TP update
• VAT position
• Systems and reporting / compliance
• Employees –implementation of new policy/structure
Adapt
• tax developments and potential impact on business
• CRS / FATCA clearances
• Reacting to tax implications of future business changes
• Ongoing compliant BAU embedded
• Ongoing monitoring of
2017 2018 2019
Exit negotiations
Clarity on exit scenario(e.g. clean Brexit)
EU Exit (in case of no extension)
Art 5017 Jan:PM speech
30© 2017 Deloitte
Brexit – implications for Fund management
The Tax Landscape for ETFs
Fund Management Companies (ManCos)
• A key consideration will be the ability to sub-delegate back to existing UK functions and exit charges around transfer of contracts
• Current position maybe: UK Funds and UK Mancos
• Future considerations post Brexit: Non-UK Funds and Non-UK ManCos
• Popular jurisdictions considered: Luxembourg and Ireland
• Issues: tax and regulatory consequences
UK and
Foreign Funds
UK ManCo
Pre-Brexit
IM Contract
Post-BrexitLux/Irish
ManCo
Foreign Fund
IM Contract
31© 2017 Deloitte
Dutch Fiscal Investment Institution (FII)
The Tax Landscape for ETFs
A Dutch Fiscal Investment Institution ETF offers investors a tax
efficient alternative for the FII and retail investors.
1) A Fiscal Investment Institution (‘FII’) is subject to Corporate Income Tax (CIT) (at 0%) - can access most Dutch Double Tax Treaties.
2) Dividends are generally subject to withholding tax (WHT) in the source state. Under most Dutch Double Tax Treaties, the tax rate on dividends or bonds received by the FII is reduced to 15% (e.g. the US-NL DTT).
3) Netherlands-based Fiscal Investment Institutions are entitled to relief for foreign dividend WHT. Such WHT may be credited against the NL dividend WHT due at the time of distribution to shareholders (payment relief) => the FII does not have to pay the deducted WHT to the tax authorities. This results in a profit for the fund and the FII can distribute 100% of the gross received dividends.
4) There is a 15% WHT on the dividend of the NL FII (albeit that this WHT isn’t actually paid to the Tax Authorities due to the aforementioned payment relief). e.g. Dutch private investor can claim credit for this WHT fully with the Personal Income Tax due or can request a (full) refund of the deducted WHT deducted. (The same might apply for EU private investors.)
5) The Double Tax Treaty rates, combined with the payment relief and the tax credit or refund at the private investor level should enable many investors to receive foreign dividends without any tax leakage.
TOTAL
CASHFLOW
Receipts by private investor:
15 tax credit against personal income tax liability for Dutch WHT*
85 nett dividend
100 total nett received
i.e. EU retail
At fund level:
100 gross dividend (85 nett received + 15 'tax refund'** for foreign WHT)
-/-15 Dutch withholding tax
85 nett dividend
Netherlands
Dividend payment:
100 gross dividend
-/-15 foreign withholding tax (NB 15% = applicable Tax Treaty rate)
85 nett dividend
e.g. United States
NL FII (0% CIT)
Private investor
Private investor
US (high) dividend equity investments
* A full credit will be available for Dutch private investors. Please note that if the NL WHT cannot be fully credited by EU (non NL) private investors under the
domestic law of the residence state, it may on the basis of NL law (partially) refundable in NL
** Subject to certain conditions the FII can claim a payment relief for the (foreign) withholding taxes that were withheld in the source country. As a result of this
payment relief, an FII usually does not need to pay the Tax Administration the full amount of dividend withholding tax withheld. The difference between the Dutch
WHT withheld by the FII and the amount to be paid to the Dutch Tax Authorities represents profit for the FII.
32© 2017 Deloitte
What’s next – new generation of products
Innovation driven industry
33© 2017 Deloitte
SMART BETA ETFs
What’s next – new generation of products
Smart beta defines a set of investment strategies that emphasize the use of alternative index construction rules to traditional market capitalization based indices. Smart beta emphasizes capturing investment factors or market inefficiencies in a rules-based and transparent way. The increased popularity of smart beta is linked to a desire for portfolio risk management and diversification along factor dimensions as well as seeking to enhance risk-adjusted returns above cap-weighted indices
Source: Investopedia http://www.investopedia.com/terms/s/smart-beta.asp#ixzz4gPzg6yHW
• 560 Bn USD invest in Smart Beta Equity ETF (Feb 2017)
• 39 Bn USD in Europe
• 18% growth and 30% CAGR over 5 year
Source: BBH 2016 European Investor Survey
Even if the product if attractiveto investors, they consider it asan add-on to their portfolio butshare is increasing
• 78% still have less than 5%in Smart Beta ETF (85% in2015)
• 19% have between 5 and20% (11% in 2015)
34© 2017 Deloitte
Active ETFs
What’s next – new generation of products
An exchange-traded fund that has a manager or team making decisions on the underlying portfolio allocation or otherwise not following a passive investment strategy. An actively managed ETF will have a benchmark index, but managers may change sector allocations, market-time trades or deviate from the index as they see fit. This produces investment returns that will not perfectly mirror the underlying index.
Source: http://www.investopedia.com/terms/a/actively-managed-etf.asp#ixzz4gQC8wMTM
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2008 2009 2010 2011 2012 2013 2014 2015 2016
Global Actively managed ETF
Asia Pacific
Canada
Europe
US
Assets (MUSD)
25% annual growth over last 3 years – mainly USIn Europe, 21 ETF of which 2 represent 75%
Very concentrated – 1 provider (Source PIMCO) representing 90% in Europe
TER lower than active mutual funds – 36bps average
Discussion in process on transparency requirements that could limit growth
35© 2017 Deloitte
New trends (COP21, green bonds, SDGs, climate change,…)
Increasing client demands being institutional or individuals ask for SDG
related actions, UNPRI, low carbon products
Reporting requirements on climate change are coming and will develop
UN PRI signatories will have to implement further to principles and demonstrate their effective investments
Return is not less than standard ETF
ESG ETF
What’s next – new generation of products
Index providers to ensure
Need for better reporting and not more
Harmonization in the standards to ensure comparability
Outputs from various working groups at EU and UN levels are expected
Increasing role of the stock exchanges to promote those investments
36© 2017 Deloitte
Robot advisors and ETFs?
What’s next – new generation of products
* Estimated forecast
** Assets managed globally by Wealth and Asset Management firms
Expected Growth in Assets under Management (AuM)** Sources: Bloomberg, Deloitte Research
2020*2015
Robo-Advisory($50 bn)
Global AuM ~$75 tn
Robo-Advisory($2.2–$3.7 tn)
Global AuM ~$102 tn
Robo-Advisory($16 tn)
Global AuM ~$137 tn
2025*
+34%
+36%
+432%
+740%
37© 2017 Deloitte
Robot advisors and ETFs?
What’s next – new generation of products
Active Management Passive Management
• Ongoing data collection and analysis of the market
• Proposes (optional) shifts in asset allocation
• Aiming at outperforming the market
• Based on pre-defined parameters
• Frequently restoring the pre-defined asset mix
• Taking human emotion out of investment-decisions
• Aiming at long-term growth in analogy with the market
~42%* of Robo-Advisors with pure active management
~25%* of Robo-Advisors with pure passive management
* Based on a Deloitte analysis of the Robo-Advisory landscape with over 70 Robo-Advisors in 2016. These figures do not include Robo-Advisors that do not manage portfolios for their client because they only suggest trades on request.
Besides, ~19 %* of Robo-Advisors offer both options. Clients can choose between
active and passive management styles.
• ETF provider are looking fornew way of distribution
Robot provide low costsolution
2 options have been growingsince 2 years:
- Acquiring/partnering with anexisting robo-advisor (BR,Lyxor,…)
- Building its own robo withdedicated team (Deutsche,Charles Schwabb, …)
38© 2017 Deloitte
Market trends
What’s next – new generation of products
FT - May 3, 2017
FT – August 26, 2015
39© 2017 Deloitte
Questions?
40© 2017 Deloitte
Next Link’n’Learn
Date: June 8th 2017Topic: Corporate Governance
41© 2017 Deloitte
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