September 2008

ETFs: The Luxury of ETFs

Fiona Rintoul talks to Danièle Tohmé-Adet (pictured) of EasyETF about new fund launches, which include luxury goods and infrastructure ... daniele_ta.jpgAt EasyETF, the French exchange-traded fund (ETF) promoter, they pride themselves on their pioneering spirit. Les trackers pionniers dans l’âme (trackers with the soul of a pioneer) reads the homepage of the EasyETF website.

When I met Danièle Tohmé-Adet, co-manager of the EasyETF range at BNP Paribas Asset Management (a co-owner, along with Axa Investment Managers) new turf is firmly at the forefront of our discussion as EasyETF has just brought a range of new products to market.

EasyETF is by no means the largest manager of ETFs in Europe. In terms both of numbers of funds and assets under management, it is easily surpassed by competitors. Latest figures from Lipper Feri (June 2008) show EasyETF with 42 funds and assets under management of e4.4bn (£3.5bn). BGI’s iShares, meanwhile, has 135 ETFs with a combined AUM of €37.1bn, Lyxor has 105 with a combined AUM of €23.3bn and Deutsche has 88 ETFs with a combined AUM of €15.1bn.

Where EasyETF does seek to stand out from the crowd is with its commitment to innovation. It describes itself as “a leader in innovation” and cites a number of firsts to back up this claim. These include two world firsts – the first tracker on a commodities futures index and first tracker replicating a global Shari’ah-compliant index – and two European firsts – the  first tracker on listed real estate in Europe and first socially responsible tracker.

EasyETF also claims the first trackers on the main sectors of the Eurozone. It currently offers ten sector ETFs based on the Euro Stoxx sector benchmarks, and tracking the automobile, banking, construction, energy, healthcare, insurance, media, technology, telecoms and utilities sectors.

The latest additions to the EasyETF fund range – twelve in all bringing the firm’s total funds to 45 (three were launched in July after the Lipper Feri figures cited above were compiled) – also aim to pursue this theme of innovation.

“We are focused on innovative asset classes,” says Tohmé-Adet.

The focus on innovation can take many forms. It can be about new markets or it can be about themes.

“We have listed many themes, including, for example, luxury,” says Tohmé-Adet. “Consumption habits are changing and the next trend is luxury.”

The EasyETF luxury-themed tracker is based on the Dow Jones Luxury Index, which tracks 30 companies reflecting a diversified cross-section of the luxury segment across countries, sectors and market capitalisation. As of 20 June 2008, the DJ Luxury Index was up 6.71% since its inception on 2 January 2006. The top three components by float-adjusted market capitalisation were Compagnie Financière Richemont SA, LVMH Moët Hennessy Louis Vuitton and Porsche Automobil Holding SE.

“The DJ Luxury index is designed by editors from the Wall Street Journal,” says Tohmé-Adet. “It’s designed to tackle consumption as well as brand. It covers a wide range of sectors, such as clothes, banking and hotels.”

Other themes include agribusiness and the environment. The June launches at EasyETF included Easy ETF S-Box BNP Paribas Global Agribusiness index, EasyETF FTSE ET50 Environment, EasyETF S-Box BNP Paribas Global Nuclear and EasyETF S-Box BNP Paribas Global Water.

“We believe in these themes as supports for investment in the future,” says Tohmé-Adet. “The demands on agriculture have been consistent. Agribusiness is one industry where you know that the demand trend is going to be consistent. Water distribution, waste management and alternative energy have also been performing well. Investment in renewable energy is going to rise from e50bn today to e300bn in 2014.”

Investment for the future is also the underlying theme of the two EasyETF infrastructure funds, one global, one European. These are not new, having been launched in March, but they have recently been cross-listed, and, again, Tohmé-Adet says they chime with global trends.

“Something that will develop across the world is a very sharp accent on basic infrastructure,” she says. “You don’t invest in the airline, you invest in the airport. You don’t invest in the train company, you invest in the railway company.”

Thus, the two EasyETF infrastructure products are based on indices devised by Natural Monopoly Index (NMX). The global index run by NMX, a Swiss-based research firm, is designed “to reflect the risk and return characteristics of the 30 largest and most liquid basic infrastructure companies”.

In terms of country plays, Tohmé-Adet says ETFs provide the ideal way to invest in emerging markets, especially “the next 11” – markets identified by BNP Paribas as the ones that will follow the Brics in terms of development and growth. So far an index has been created by S-Box, BNP Paribas’s index egghead division, that gives exposure to eight core markets within “the next 11”, namely Mexico, Korea, Turkey, Indonesia, Pakistan, Vietnam, the Philippines and Egypt.

“These are very difficult markets to access,” says Tohmé-Adet. “They are very expensive to access. They are complex. It makes sense to have them on an ETF.”

Investors can currently choose between an ETF based on the S-Box BNP Paribas Next 11 Core 8 Emerging Countries index or individual ETFs for Egypt, South Korea and Turkey. The Egyptian ETF is another world first and is based on the Dow Jones CASE Titans Egypt 20 index. The Turkey and South Korea funds are also based on Dow Jones Titan indices.

It would be a mistake, however, to think that the folks at EasyETF are only interested in the exotic and the difficult-to-access. The recent raft of launches also included some workaday gap-filling and new exposure to the USA.

Gap fillers have included a new tracker providing exposure to the DJ Stoxx 600. On the bond side, the EasyETF EuroMTS Eonia was introduced on 9 June, offering investors immediate exposure to the Eurozone money market.

Meanwhile, two new US ETFs were launched in June providing exposure to the S&P 100 and the Russell 1000. The latter, notes Tohmé-Adet, has outperformed the S&P 500 recently and covers 92% of the US equity market. Both products are provided in dollar and euro classes.

“The dollar class meets the needs of asset managers who want the underlying in dollar,” Tohmé-Adet explains. “However, retail investors are more comfortable with an allocation to the USA denominated in euros.” © 2008 funds europe

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