Morningstar Reports on Securities Lending Practices in Europe
On August 23rd, Morningstar’s ETF analysts released a report examining the practice of securities lending amongst providers of physical replication ETFs. Securities lending is the process of temporarily loaning securities to a third party in exchange for a fee. Securities are normally lent on an open basis with no fixed maturity date, which gives lenders the flexibility to recall their securities at any time.
Since securities lending involves the transfer of assets between parties, the practice implicitly introduces counterparty and collateral risk for those investors holding ETFs or other funds involved in this process. The various sources of counterparty risk within funds have been the subject of increased regulatory scrutiny recently. New industry guidelines could result in more ETF providers returning income generated from securities lending to their shareholders.
In conjunction with new industry guidelines, the Morningstar report finds some providers have already improved transparency though there is still room for improvement across the industry as a whole.
iShares Leads the Way in August Listings
In a somewhat sleepy month for new ETF launches and listings, iShares led the way with twelve new ETF listings across three different exchanges. In Germany, iShares bolstered its commodity ETF range with four ETFs tracking S&P GSCI indices employing dynamic rolling methodologies. Along with other providers, iShares has begun to promote dynamic rolling methodologies over traditional rolling methodologies for commodity futures investments since dynamic methodologies attempt to mitigate the pernicious effects of contango. On the Swiss SIX exchange, iShares added 7 new ETF listings focusing on rich-world equities and niche fixed income sectors. Of late, yield-thirsty investors have begun to hunt for yield in dividend-paying equities, corporate bonds, and emerging market debt. As evidenced by their new listings, iShares appears to be trying to serve this investor interest more directly. Finally, on the Borsa Italiana, iShares listed an ETF tracking Italian Treasury Bonds.
UBS Continues to Expand its Range
Throughout August, UBS continued its listing spree with six new listings across two exchanges. Specifically, UBS listed two share classes (A and I) of an ETF tracking the MSCI Brazil index on both the Deutsche Börse and the Swiss SIX exchange. Meanwhile, UBS launched two share classes (A and I) of an ETF tracking the Swiss Bond Index (SBI) Domestic Pfandbrief of both short- and long-term maturities. The new UBS ETFs invest directly in all bonds contained in the SBI indices and are typically comprised of AAA-BBB bonds denominated in Swiss Francs. Over the past three months, according to our count, UBS has listed or launched 75 ETFs across the breadth of European exchanges.
db X-trackers Brings China A-share Access to Italy
This month, db X-trackers listed the db x-trackers CSI300 Index ETF (XCHA) on the Borsa Italiana. The ETF tracks the CSI300 index which consists of the 300 A shares with the largest market capitalisation and liquidity from the entire universe of listed A share companies in the People’s Republic of China. Historically, international investors have struggled to gain access to Chinese A shares because of restrictions on foreign investment. Last month, db x-trackers listed this ETF on the London Stock Exchange marking the first time European investors were able to gain A-share access via an ETF.
Click here to see the latest European ETF launches.
To see the round-up of ETF news from July, read "New ETF Guidelines Shake Up the Industry".
Coming Up: Morningstar ETF Invest Conference Europe 2012
Thought Leadership from the Leaders in the ETF Space
Morningstar’s Inaugural ETF Invest Conference Europe will feature some of the sharpest minds in ETF management and top pundits to help sort out the complexities, alternative theories, and investing strategies using ETFs. The event features keynote presentations, and general discussions, on key areas of strategic and tactical investing solutions. The conference will also give you the opportunity to develop and expand your professional network by conversing with fund managers, analysts, providers, and other financial industry experts.
For full details visit the conference web site here.
