ETF Investors Attracted to New Funds and Fixed Income

Terry Flanagan

Michael John Lytle, chief development officer and founding partner at Source, an exchange-traded fund issuer, said investors has been putting money into new funds and fixed income as assets in the European ETF/ETP industry reached a new record.

ETFs and ETPs listed in Europe gathered $5.76bn in net inflows in June taking total assets to to a new high of $470bn according to preliminary data from consultancy ETFGI’s Global ETF and ETP industry insights report for the first half of this year.

Lytle said in email to Markets Media there had been strong flows into Source ETFs and ETPs this year and investors are going beyond using ETFs as simple index tracking products.

“In fact, we saw around a third of the net new money going into our new fund launches which offer a diverse range of exposures, from covered bonds to China A shares to equity risk factors,” he added. “The common feature among all these innovative funds is that they offer an opportunity not generally available in more traditional investment funds, or it is where a Source ETF provides exposure more efficiently and effectively than other types of fund.”

Lytle said another noticeable trend this year has been the consistent flows into fixed income, especially in short duration products. “These have contributed the greatest part of our fund inflows overall and has given Source the mantle of being the largest actively managed fixed income ETF provider in Europe with $2.4bn in assets,” he said.

ETFGI said that in the first half of this year in Europe equity ETFs/ETPs had the largest net inflows of $18.5bn, followed by fixed income with $12.3bn, while commodities had net outflows of $427m.

Deborah Fuhr, managing partner at ETFGI, said in a statement: “In June investors invested almost all net new money into equity exposures with the US and emerging markets being the preferred allocations. The S&P 500 index ended up 7% at the end of Q2 2014, closing at an all-time high (1963) on June 20th. The positive equity market performance has helped to improve investor confidence during the first half of 2014.”

In Europe BlackRock’s iShares had the largest inflows of $12.9bn in the first half of this year followed by Societe Generale’s Lyxor with $3.55bn according to ETFGI. UBS GAM was third with $3.35bn followed by Source with $3.13bn and Vanguard with $2.76 bn.

At the end of June the European market consisted of 2,059 ETFs/ETPs with 6,227 listings from 50 providers listed on 25 exchanges, according to ETFGI.

Exchange operator Bats Chi-X Europe said in a statement today it has extended interoperable clearing to include ETFs and ETPs in order to make the market in Europe more efficient and increase participation and liquidity for all investors and traders.

From 21 July trading participants will be able to select Netherlands-based EuroCCP, the UK’s LCH.Clearnet or SIX X-Clear from Switzerland to centrally clear their trades executed on Bats’ order books. Market participants will then be able to net trades on Bats Chi-X Europe with deals executed on other venues and save significant collateral and risk costs.

Guy Simpkin, head of business development at Bats said in a statement: “The European ETF market is around a tenth of the size of its US equivalent, and changes to simplify market structure will enable it to grow in size and efficiency. We pursued our Registered Investment Exchange license, which is now a year old, with the explicit intention of improving the European ETF market and the momentum we’ve achieved so far reflects our commitment to reform this critical element of the market.”

In May last year Bats Chi-X Europe was authorised as a Recognised Investment Exchange by the Financial Conduct Authority, the UK regulator.

The status allows BATS Chi-X Europe to operate a regulated market for primary listings, and the exchange has focussed on ETFs rather than corporate initial public offerings.

Prior to Bats Chi-X Europe’s listings venue, issuers needed to list the same ETF on multiple venues in Europe which increased trading costs as clearing and settlement was also in multiple locations.

In order to minimise trading costs, Bats Chi-X Europe also offered a competitive liquidity provider program to ETF market makers. In the CLP program, issuers have a budget to reward market makers who meet specific criteria such as the bid-offer spread, the number of shares and the length of time for which they offer prices. The exchange monitors their performance to allocate the rebates.

Featured image via Dollar Photo Club

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