Wars (and Rumours of Wars)
In October, ETF industry leaders were eager to dismiss insinuations that any sort of competitive warfare existed between ETF providers.
Rumours of an ETF industry price war have surfaced on both sides of the Atlantic. Of late, ETF providers have been engaged in an aggressive round of cost-cutting arguably in an attempt to garner fresh in-flows into ETFs. In the US, Vanguard attempted to appeal further to cost-conscious investors by reducing licensing fees paid to benchmark providers, which in turn should lower their expense ratios. In turn, Blackrock iShares announced a new range of low cost ETFs labeled the iShares Core Series, which cut fees on six already-existing ETFs and launched four complimentary low-cost ETF products. Furthermore, at the end of September, Charles Schwab announced its decision to reduce expense ratios across its entire line-up of ETFs. More recently, in Europe, Lyxor announced that it would cut fees for seven of its largest ETFs.
When asked about their recent competitors' fee reductions, Larry Fink, CEO of iShares, stated emphatically that "this is not a price war" and said later that the price war is a "myth." Other top executives, such as Simon Klein, the global head of business development at Lyxor, have reiterated that the price war moniker is a misnomer and should more rightly be considered just one aspect of an ongoing investment industry evolution. Whether or not ETF providers are actively engaged in price warfare is up for debate, but it is certain that ETF providers have begun to cut expense ratios with increased regularity.
Vanguard's Nick Blake discusses the ETF “price war” in the video, “ETF Price War to Help Investors”.
In the past, there had been a war of words between providers offering physically replicated ETFs and providers offering synthetically replicated ETFs. But at Morningstar's inaugural ETFInvest Europe conference in Milan, David Gardener, managing director of iShares EMEA, announced that the war between ETF providers over physical versus synthetic replication methods is over. Thorsten Michalik, global head of db X-trackers, and Nizam Hamid, head of ETF Strategy at Lyxor, echoed these sentiments by saying that the physical versus synthetic debate should rather be a debate over active versus passive product selection and that investor choice is of paramount importance.
To learn about how db X-trackers is planning to launch physically replicated ETFs, read “db X-trackers Getting Physical”.
Credit Suisse Plans to Sell its European ETF Business
According to Reuters, Credit Suisse has placed its European ETF business up for sale with likely bids coming from Blackrock and State Street Global Advisors. A first round of bids has already taken place earlier in October, according to Reuters, with all firms declining to comment on the matter. According to Morningstar's data from the end of September, Credit Suisse had €13 billion in assets under management spread across 58 ETFs representing 5% market share in Europe. Credit Suisse's European ETF business represents approximately 94% of its global ETF assets under management. Reuters and other news organisations have reported that the strategic sale of Credit Suisse's ETF business is likely due to new regulations for higher bank capital requirements.
New ETF Provider Arrives on the Scene
According to a report by Index Universe, a new ETF provider was created in October by ex-ETF Securities founders, Hector McNeil and Nik Bienkowski. The new provider has been named Boost ETP. Boost plans to launch their first round of ETFs catered to the European market in either late 2012 or early 2013. The first ETFs will be launched on the London Stock Exchange.
With reports that the Credit Suisse ETF business is up for sale and other banks are in the process of restructuring their ETF divisions, Boost's founders see an opportunity for independent ETF providers to gain market share. In a conversation with Index Universe, Hector McNeil, co-CEO of Boost, stated that "Over the next year or two we expect to see banks start pulling out of the market and a US ETF market model being adopted. That is, several big issuers and many independents. This is where we see our role."
New ETF Launches
Lyxor Leads the Pack in ETF Listings for October
It was another light month for new ETF launches and listings in October, but Lyxor led the way with three new ETFs on the NYSE Euronext Paris exchange. Lyxor bolstered its fixed income ETF range with two ETFs tracking MTS indices on short-term government debt in Italy and France. Meanwhile, Lyxor also launched the Lyxor ETF SG Quality Income fund that aims to invest in equities with high and sustainable dividend yields. With fixed-income interest rates hovering near 0%, investors have been more apt to take on more risk in order to generate income. This ETF fits that niche by offering a relatively higher yield via equity exposure.
SPDR Expands its Range
In October, SPDR launched two new ETFs on the Deutsche Börse exchange. Specifically, the first SPDR ETF tracks the Dow Jones Global Real Estate index and charges a 0.40% total expense ratio (TER). Meanwhile, SPDR also launched a smart-beta equity ETF called the SPDR S&P 500 Low Volatility ETF tracking the 100 companies of the S&P 500 index with the lowest volatility. This fund charges 0.35% TER.
Ossiam Launches Global Minimum Variance Fund
This month, Ossiam launched another minimum variance ETF across multiple exchanges in Europe aimed at capitalising on growing investor appetite for smart-beta products. The Ossiam ETF World Minimum Variance fund applies its proprietary minimum variance investing methodology to the S&P Global 1200 index. The fund will charge a 0.65% TER.
Learn about ETF listings from September by reading, “New ETF Listings in September”.
