Rainer Riess, managing director of stock market business development at Deutsche Börse, says: “Following the introduction of European equity and bond ETFs, we are now offering the world’s first commodity ETF in the rapidly expanding market for exchange traded index funds. EasyETF GSCI grants investors straightforward and cost-efficient access to the commodities market.”
The fund, which was launched in close collaboration with Goldman Sachs and created on January 12 this year, is only the second new ETF launch since AXA Investment Managers and BNP Paribas combined forces to manage, develop and distribute the EasyETF range in February 2005. Created in 1991, the Goldman Sachs Commodity Index (GSCI) mirrors the performance of 24 commodities across four sectors, including energy.
The new EasyETF GSCI, the commodity ETF of the Axa IM/BNP Paribas platform, started trading on the SWX Swiss Exchange (denominated in dollars) on May 31, following the ETFs listing on Deutsche Börse (in euros) on May 19. It is also Ucits III compliant.
Investor interest
Veronique Rauturier, co-head of the EasyETF platform, speaking from Paris after the launch of the commodity ETF on the SWX Swiss Exchange, said: “Significant investor interest was seen prior to this listing, and the current figures would appear to vindicate our belief that assets under management would top $100m (€77m) in the first week of launch.”
Other products in the EasyETF range include the first quoted real estate ETF based on the FTSE NAREIT/EPRA index, which last year was seen as a real innovation, and an ETF based on a socially responsible index.
The ETF market has come a long way from its origins in January 1993 and the first ‘Spider’. According to Morgan Stanley’s authoritative ETFs - End of Q1 2005 Review., as at the end of March 2005, globably there were 362 ETFs with 461 listings assets of $314.9bn, managed by 44 managers on 32 exchanges.
Deborah Fuhr, executive director, investment strategies at Morgan Stanley and author of the review, says comparing Europe with the US in terms of maturity is akin to comparing David with Goliath. Unsurprisingly, the US was found to have the largest number of products and assets under management – 164 ETFs and $231.2bn – compared with Europe’s 122 ETFs and $36.9bn. That said, assets under management for European ETFs rose 8.7 per cent for the period under review, compared with a 1.5 per cent rise for the US and a 12 per cent decline for Japan.
In the US ETF market it took Barclays Global Investors (BGI) less than five years to reach the $100bn assets under management landmark, while for the mutual funds industry as a whole it took 55 years to achieve the same figure.
Wrap accounts
Bruce Lavine, head of iShares Europe (BGI) in London, says that although the ETF market in Europe is fragmented, there are some interesting developments on the horizon that should give it a boost. These include advisers for retail business seeking ways to have ETFs on their platform through various wrap accounts.
Isabelle Bourcier, ETF global co-ordinator at leading French player Lyxor AM, which is a wholly owned subsiary of Société Générale, says that, as a product, ETFs are being used increasingly by investors over a short-to-medium timeframe.
Turning to Europe, total on-exchange trading turnover for Q1 2005 is estimated at €20bn, according to sources including Bloomberg, with Deutsche Börse’s XTF (Xetra order book) accounting for 55 per cent of the total, followed by NextTrack at 17 per cent.
Chris O’Brien, vice president of marketing and sales for Europe and Asia at Standard & Poor’s in Paris, says: “While it is perhaps too early to see how the institutional community might turn to the new commodity ETF, the retail market for ETFs in Europe is very fragmented. Cross-border trading is fairly expensive, irrespective of the fact that sometimes investors do not have the visibility or information needed to trade.” S&P has worldwide market leadership for ETFs among all index providers, with more than 50 ETFs trading on four continents (more than 34 per cent of global ETF assets under management).
Euronext’s NextTrack, the market compartment of the pan-European exchange dedicated to the trading of trackers, had a total of 62 ETF funds listed as of early June – spanning everything from country indices to geographical areas and business sectors. The latest NextTrack newsletter urged investors “not to wait until 70!”. As an additional service Euronext publishes indicative NAVs for trackers traded on NextTrack to make them more transparent.
Reflecting the attractions of Euronext (Paris), State Street Global Advisors (SSgA) – the investment management arm of State Street Corporation and one of the largest institutional fund managers in the world – launched a new streetTRACKS MSCI Europe Small Cap ETF on NextTrack on June 3. Investors are offered exposure to the 453 underlying securities of the MSCI Europe Small Cap Index. Not unconnected with this event, a survey from TLB, a company that monitors stock market behaviour among individual French investors, around 100,000 people in France invest through trackers.
Alain Dubois, European director of marketing for ETFs at SSgA, says: “The introduction of this new small cap product further demonstrates our commitment to the ETF market, and to manufacturing and administering complex, yet easy-to-use investment products.”
Deutsche Börse’s XTF segment is undoubtedly Europe’s leading market place for ETFs. In April it celebrated its fifth anniversary and secured a coveted award in New York as Europe’s most proactive ETF exchange. The first quarter of 2005 proved to be the most successful quarter for the Frankfurt-based exchange since the introduction of the segment, with AUM of ETFs listed on XTF reaching €18.4bn - surpassing the €16.4bn achieved for the whole of 2004.
XTF currently boasts 73 index funds – the largest range of any European stock market. Trading volume on Xetra in March stood at €3.7bn and is equivalent to more than 50 per cent of total trading volume in exchange-traded index funds for the whole of Europe.
Lse lagging
“In the first quarter of 2005, XTF generated more than E11bn, the highest quarterly turnover since the introduction of the segment,” adds Deutsche Börse’s Mr Riess. By contrast, figures for May from the London Stock Exchange saw the average daily value of ETFs traded on SETSmm rise 21 per cent (£30.1m) compared with the same month a year before, and the average daily number of trades 14 per cent higher at 472. With 12 iShares listed in London, some might argue the LSE lags its exchange counterparts.
The inclusion of ETFs into a CCP this June on Deutsche Börse eliminates the counterparty risk for each exchange traded transaction as Eurex Clearinghouse becomes the counterparty, says Mr Riess.
Indexchange Investment AG, a Munich-based ETF specialist and member of the HVB Group, issued five new Indexchange ETFs in the wake of XTF‘s anniversary. These included the first ETFs in the world to be based on the benchmark share indices DivDAX®, Dow Jones STOXXSM 600, Dow Jones STOXXSM 200 Small, Dow Jones STOXXSM 200 Mid, and Dow Jones STOXXSM 200 Large.
Last month, Indexchange announced trading of the first ETF fund for eastern Europe and the new EU member states with the Dow Jones STOXX EU Enlarged 15SMEX (15 blue chips from Hungary, Poland, Slovenia and the Czech Republic).
Clemens Reuter, head of products and service management at SWX Swiss Exchange in Zurich, says he expects a total SFr12bn of turnover in ETFs on SWX for 2005 - equivalent to a growth rate of 12.5 per cent over 2004. “On both the SWX and virt-x exchanges traders have to mark the trade as nostro (principal money) or agent trade (acting for a client). On average we see 45 per cent agent trades, which is a fairly high percentage compared with other exchanges in Europe, so there is a great deal of client money coming in and out of ETF products,” Mr Reuter says.
SWX and virt-x are also the only exchanges in Europe that offers ETFs in four different currencies (US dollar, Yen, euro and Swiss franc), which he says is particularly attractive for asset managers and institutions since currency exposure can be mitigated. To date, 30 ETFs are available on the SWX segment with AUM of about €13.2bn, while the ETF segment on virt-x has 16 ETFs (AUM of about €6.9bn). Forthcoming listings include iShares GS $ InvesTop Corporate Bond this month, subject to Swiss regulatory approval.
The Italian market, which was only established in 2003, is characterised by a high retail investor participation. Raffaele Jerusalmi, director of financial markets at Borsa Italiana, says that beyond ETF listings, one has to appreciate the importance of trading in the secondary market. And, while other exchanges proudly parade the numbers of ETFs listed on their exchanges, he says: “Our main strategy at Borsa Italiana has always been to be extremely focused on having liquidity on the secondary market, and we are encouraged to see very active trading in the ETF segment. While additional listings are interesting – and to date we have 24 ETFs listed - we generally are in favour of having a few highly liquid ETF products.” The turnover liquidity of Borsa Italiana’s ETF segment is one of the highest in Europe.
Jerusalmi: focus on liquidity
Impressive volumes
Borsa Italiana’s Q1 2005 trading volumes were fairly impressive, rising 146 per cent to €1632m compared with the first quarter of 2004, with total contracts rising 120 per cent. New ETF products in the pipeline are thought to include an inflation-linked ETF. Issuers listing ETFs on the exchange benefit from a relatively inexpensive tariff, while the listing process itself has a duration of around two months. Active issuers include iShares and Lyxor AM – the latter is involved in the highly traded S&P/MIB ETF.
With Europe’s projected growth in ETFs, it might be too early to talk of a battle looming among the region’s bourses to win new ETF listings. There is certainly a healthy level of competition between them in the sector, which most see as being positive. One industry source expressed the view that over the next two years perhaps 80 to 90 per cent of ETFs trading in Europe might gravitate towards the top three exchanges. Others, such as easyETF’s Veronique Rauturier, believe the development of a pan-European distribution platform is crucial to ETFs’ future success and access to a whole range of investors.
