Source Targets Retail ETF Investors08.10.2015
Source, the European ETF issuer, plans to focus on retail investors as it aims to reach a run rate of $5bn in new flows each year.
James Polisson, chief marketing officer at Source, told Markets Media: “We are going to begin to target retail investors and two of the largest opportunities are found in the UK independent financial advisor and Swiss private wealth market. Other ETF providers have taken institutional knowledge into the mass market and Source will now bring its expertise and innovative approach to these markets as well.”
Polisson had been chief executive of Russell ETFs before joining Source in March. In that month former chief executive Ted Hood, who launched Source with Peter Thompson in 2009, also left the company.
Prior to Russell, Polisson was global head of marketing at iShares between 2000 and 2009, when the US ETF provider was sold by Barclays Global Investors to BlackRock. Lee Kranefuss, former chief executive of iShares, became executive chairman at Source when a majority stake in the European ETF issuer was sold to private equity firm Warburg Pincus last year.
Source faces competition in the European ETF market where issuers have been cutting fees. For example in March, BlackRock reduced the cost of investing in the UK’s oldest and largest FTSE 100 ETF – the iShares FTSE 100 UCITS ETF – from 0.4% to 0.07%.
“We believe IFAs assess the level of service they receive against what they pay in fees, “ added Polisson. “In addition, our core beta products such as the Source S&P 500 UCITS ETF and the Source EURO STOXX 50 UCITS ETF have some of the most competitive fees in Europe.”
Fees became more competitive in the UK after the Retail Distribution Review regulations encouraged a move from commission-based to fee-based advisors. This is beginning to take place across Europe and should boost the adoption of ETFs among retail investors, as happened in the US when there was a similiar change amongst financial advisors.
Polisson said Source would continue to partner with fund managers to issue some ETFs and will also launch new products for the retail market.
“IFAs want to be able to offer active products and we will continue to form partnerships with firms such as Pimco and Man GLG. Potential new products include currency-hedged ETFs and fundamentally weighted Smart Beta ETFs,” he added.
Last month Source gathered then fourth largest net ETF/ETP inflows in Europe, $966m, according to consultancy ETFGI’s preliminary ETF and ETP global insights report. In Europe iShares gathered the largest net ETF/ETP inflows in July with $4.1bn, followed by Deutsche Bank’s db x/db ETC with $1.6bn and Societe Generale’s Lyxor AM in third place with $1bn.
Polisson said: “We believe that in the next two to three years, there is no reason why we should not seek a run rate of $5bn in new flows each year .”
A record $48.4bn in net new assets was gathered by ETFs and ETPs listed in Europe in the first seven months of this year, overtaking the $42.9bn gathered in the same period in 2014 said ETFGI.
Through to the end of July, equity ETFs/ETPs gathered the largest net inflows in Europe of $27.2bn, followed by fixed income with $17.5bn, and then commodities with just $684m.
“So far this year, the lion’s share of our new flows, approximately $2.2bn, have been into our fixed income range and we have high aspirations for the fourth quarter,” added Polisson.
At the end of last month the European ETF/ETP industry had assets under management of $504bn from 50 providers according to ETFGI.
“The first challenge is for Source to reach $20bn in assets under management and the second is to grow from $20bn to $50bn,” added Polisson. “In Europe, we believe a number of issuers will move closer to $50bn assets under management in the next three or four years.”
In May rival ETF issuer WisdomTree Europe said the the company had reached more than $500m in assets under management.
Nik Bienkowski, co-chief executive of WisdomTree Europe, said in a statement: “I am encouraged by the strong execution across our growing operations, product development, distribution, research and capital markets efforts which have raised a total of $548m (as of 25 May 2015) in assets today, since the formation of WisdomTree Europe last April, when our AUM was $97m.”
In July WisdomTree listed its two flagship currency-hedged ETFs on the SIX Swiss Exchange. WisdomTree has approximately $39.6bn in assets under management in currency-hedged ETFs.
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