10.28.2011

Institutions Find ETP Ease

10.28.2011
Terry Flanagan

Long deemed as a “placeholder,” for many institutions, buy side investors are now experiencing the “active” side of exchange-traded products.

ETF Securities is a provider of exchange-traded products, which includes exchange-traded funds, exchange traded commodities and exchange traded currencies. The industry totals 178 billion in assets, an increase four times the size of total assets in 2008, according to the firm’s data.

Such an accumulation in asset size is an impressive feat considering rampant market volatility, gyrations, and a decline in overall assets—including commodities, noted Nicholas Brooks, head of research and investment strategy at ETF Securities.

“The substantial growth can be explained by financial investors’ desire for convenience, liquidity, and transparency. There is also a desire to move into hard assets,” Brooks said, highlighting the specific explosion in ETPs that track indices of hard assets, such as commodities.

“In this environment, there is concern over currency debasement,” Brooks noted. “Apart from inflation, there are concerns about quantitative easing from the Bank of England, U.S. Federal Reserve, European Central Bank, and nominal depreciation in the money system…investors want something more tangible.”

The search for tangible assets stretches among the institutional investor community, where ETPs typically do not place a place within asset allocation, but rather, a placeholder for exposure while in-between active managers.

Brooks, who formerly was a senior member at London-based Henderson Global Investors asset allocation and strategy team, commented that long-term institutional investors have now turned to futures as a means of accessing markets not stated in their mandate.

“Intuitions wanted access to commodity returns, and if didn’t have a mandate for futures, they turned to buying equities of commodities—such as gold miners, to get exposure,” he said, nothing this method of gaining exposure as “imperfect.”

“They didn’t know about commodity ETPs, even a few years ago,” he cited.

Commodity ETPs have been relative new on the scene of hot investments, mainly due to a general rise in demand for commodities.

“There is medium, to long term rise in the emerging markets in per capita income,” Brooks said, “China, especially, is driving demand for commodities while you have a finite supply.”

Related articles

  1. The blockchain-based platform is the first to connect metals and cash settlement networks.

  2. Morgan Stanley completed the acquisition of E*TRADE in 2020.

  3. Blackstone committed $400m to lead a strategic investment in Xpansiv in July.

  4. LME Looks to Chinese Growth

    The Managed Funds Association said LME has undermined confidence in its ability to oversee markets.

  5. CME Expands Metals Suite

    Lawsuits have been filed against the LME’s decision.