ETF Industry News
Perhaps the most interesting bit of news in the European exchange-traded products (ETP) industry in March was the EDHEC-Risk Institute's announcement that it would begin providing investors access to data on a range of so-called "smart-beta" indices for free. As part of EDHEC's initiative, they plan to unveil their indices and data on scientificbeta.com in the coming months. Of late, there has been increasing discussion in the European ETP industry focused on "smart-beta", but what exactly is "smart-beta"?
Morningstar ETF analyst Al Kellet has written extensively on the subject, saying smart-beta indices are "somewhat of a middle ground [between active and passive management]… encompass[ing] a variety of transparent, rules-based approaches to constructing a portfolio, but with constituent weights decided by factors other than market capitalisation, which tends to hold sway in most purely passive exposures.” In essence, "smart-beta" indices, and by default "smart-beta" ETFs, are attempts to outperform a market-cap weighted index using pre-determined rules for security selection.
Morningstar has covered some of these "smart-beta" strategies at length including equal weighted indexing, buy-write strategies, and monthly leveraged exposures. EDHEC, however, may be taking smart-beta to a whole new level. According to Kellet, "EDHEC is trying to refocus the smart beta discussion onto types of risk." Kellet argues that focusing on risk exposures rather than advanced index filtering may help encourage investors to manage portfolio risk more effectively.
In other news, European ETP providers continue to spar publicly in the increasingly competitive fight for fund flows. In March, State Street and Deutsche Bank both changed the names and updated the fact sheets of many of their ETFs to include the phrase "UCITS ETF". According to the European Securities and Markets Authority (ESMA), all ETF providers in Europe must incorporate this nomenclature into their existing ETFs next year in accordance with new guidelines. State Street and Deutsche Bank are hoping the early move will pay dividends in the form of increased investor flows. Meanwhile, Lyxor and BlackRock/iShares have yet to make the required changes saying that they are in no hurry.
New ETF Offerings
New ETP issuance and listings continued to be slow in March as only nine ETPs were listed by our count. Some of the more interesting products to be launched were featured on the London Stock Exchange and the Deutsche Borse in Germany.
On the London Stock Exchange (LSE), Source listed a new share class of the Pimco Short-Term High Yield Corporate Bond Index Source ETF denominated in sterling. There had previously only been a US dollar-denominated listing of this ETF available on the LSE.
On the Deutsche Borse, Lyxor launched two volatility-based products that offer long and inverse exposure to a dynamic VIX futures index. The Lyxor ETF Dynamic Long VIX Futures Index tracks the performance of the combination of a hypothetical money market instrument and a dynamic strategy that is designed to provide efficient long exposure to the first five nearby futures contracts on the CBOE Volatility Index. The Lyxor ETF Dynamic Short VIX Futures Index, on the other hand, tracks the performance of the same money market instrument and a dynamic strategy that provides short exposure to the first two nearby futures contracts on the CBOE Volatility Index.
Also on the Deutsche Borse, ETF Securities launched an exchange-traded commodity (ETC) product called the ETFS EUR Daily Hedged Physical Gold. The new ETF Securities ETC enables investors to participate in the development of the gold spot price, with daily hedging against US dollar exchange rate fluctuations.
