The ETF market is a competitive enviroment dominated by some big players, but other providers are determined to go their own way. Alix Robertson asks how these firms aim to set themselves apart in the low-cost ETF arena.
Amsterdam-based firm, Think ETF’s, began in 2008, launching its first products in the Netherlands in 2009. The firm’s approach focuses on minimising counterparty risk and dividend leakage, where investors lose the opportunity to reclaim withholding tax when using a foreign ETF. Keeping costs down is also a central focus.
Managing director, Martijn Rozemuller, says: “When I started designing Think ETF’s it was basically with myself as customer in mind. One of the things that reflects that very well is the fact that we have chosen a structure in which the cost for the funds, any overheads at all, are not put through the fund, but paid by the asset manager.”
The firm operates out of a small office with six staff, and outsources tasks in a number of areas. Rozemuller says: “We really focus on designing and maintaining ETFs and doing sales and marketing. Those are our most important topics and the rest is outsourced. That gives us the opportunity to stay quite lean and mean, and therefore able to probably be very competitive.”
While Think continues to focus primarily on the home market, Rozemuller expects to move into other countries within the next two to four years. He says: “We will definitely not be the next big, international player in the sense of having hundreds of ETFs. We will probably limit to anywhere between 15 and 20.
“We really want to focus on what we can do best, and that’s making quite rudimental ETFs that track, in a physical manner without the counterparty risk, without the dividend leakage, the broader indices,” he adds.
At UBS ETFs, part of Swiss firm UBS Asset Management, the focus is on a new suite of products launched at the end of last year across Europe. UBS’s currency-hedged equity ETFs come in 33 different forms, hedging various currencies including sterling, euro, Swiss franc and the dollar, and tracking the MSCI indices. All UBS currency-hedged ETFs also run alongside plain vanilla versions of the same fund.
Andrew Walsh, head of UBS ETF sales UK & Ireland, says: “We are the largest provider of currency-hedged equity ETFs in Europe and they have been very popular ... We’ve had around £2 billion in inflows into this suite of products since November last year, from all across Europe.”
Walsh says the currency-hedged products have opened up a new area of investment: “Five years ago, you might have said ‘OK, I like the prospects for the European equity market but I don’t like the risk with the currency, so therefore I’m just going to walk away from the trade’.” Now investors are able to take up these opportunities, knowing they are protected if a currency weakens, he adds. While the currency-hedged equity funds have been popular with a broad audience, UBS has also launched more niche products, such as five ETFs tracking the MSCI socially responsible investing (SRI) indices. Walsh sees a future in this particular range as well: “It will never be huge, but there will be an increasing number of certain investors who want to avoid the sin stocks.
Launched in 2009, Source focuses solely on exchange-traded products, covering equities, fixed income, commodities and alternatives. The firm partners with the likes of Man GLG, Merrill Lynch and Pimco in a third-party role, allowing it to share the resources and expertise of a range of different banks and asset managers.
The firm is focused on providing a range of products for investors. Chief development officer, Michael John Lytle, says: “We look across equities, fixed income, commodities, alternatives, plain vanilla passive beta, active strategies and everything in between; and we say: ‘what mix creates an interesting toolbox for the clients that we talk to?’”
He describes the offering as a “high-end supermarket”, not crowded with products, but not designed specifically to suit one individual investor either.
“You need to choose one of our 81 choices, but we’ve put things on the shelf, thinking quite carefully about the investor base, the sort of things that they need and what will have real resonance,” he says.
The firm also aims for choice in its approach geographically, Lytle says: “The UK, France, Germany, Switzerland, Italy, the Nordics and the Middle East; these have all been important to us right from the beginning. We pursued them equally because we knew that’s where the existing assets were; we built a European business from the start.”
He sees Source’s current position as “just the starting point” and plans for further growth in the future: “We’ve focused on trying to get as many of our products up in size as possible, so that the overall offering has critical mass. We have fewer products than some, but we’re more focused, we’re raising more money in each one, and we’re trying to have a more thoughtful offering.”
Amundi ETF, a product range of the international asset manager, Amundi Group, has launched ETF products since 2001.
New approaches and different asset classes are an ongoing focus for Amundi, but so is clarity for investors. Fannie Wurtz, head of sales and coverage for Amundi ETF, says: “For us, innovation does not mean complexity, we want to stay simple even with the products we innovate. An ETF has to be a simple product; it’s a market access product.”
An ETF project for Amundi involved working with MSCI on developing a family of low carbon indices consisting of companies with significantly lower carbon exposure than the broad market launched in September.
Wurtz says: “There is huge attraction for our clients in lowering the carbon effect. This is something that is going to be a major theme for Amundi, it is something we are rolling out and hope to offer more widely.”
Alongside exploring new products, Amundi ETF is also moving into Asia, an area the company views as a growing market for the ETF space. Wurtz says the intention is to both sell Amundi’s European-domiciled Ucits funds to Asian clients, but also to look into local ETFs to be sold to local investors.
She adds that the a continued focus on innovation is helping to drive interest in the ETF market and she sees further expansion in the future: “We do see more and more clients looking at ETFs, the market is starting to mature and we are seeing a lot of innovative smart strategies coming in.”
WBI Investments plan to cross-list its ETFs on exchanges in Europe and across the world, but for now it is a US operation based in Red Bank, New Jersey. It has been working with wealth managers, institutional and private investors for 22 years. An active management strategy that aims to provide consistent returns while protecting investor capital is at the heart of the firm’s approach to investing.
WBI Shares, which partners with WBI Investments, launched in September this year, offering a range of actively managed ETFs with holdings chosen by an investment manager. Its debut involved the launch of ten products, which raised just over a billion dollars in assets overnight.
President at WBI Investments, Matt Schreiber, says: “Our strategies manage the risk to capital on a day-to-day basis, so we’re trying to achieve a long-term outcome which is good returns relative to the market, but take less risk, less volatility, less correlation to the market on the downside.
“An asymmetrical outcome is what we’ve been focusing on for over 20 years.”
Schreiber also says that the ways the products are designed is important in maintaining strong relationships with clients: “These are bespoke ETFs, they were carefully crafted to meet our clients’ needs and we’re always thoughtful of the end investor.
“The aim is for them to stay comfortably invested, be able to sleep a little bit better at night hopefully, and grow their capital long-term.”
The firm plans to move forward with around six new ETFs set to launch mid-2015. Schreiber hopes to see the firm expand further: “Our natural sales market has been to advisers, so I think we will continue along those lines, however, I’m sure as we grow that we will become more attractive to the retail or investing public.”
©2014 funds europe