02.03.2014
By Terry Flanagan

UK Investors to Use More ETFs

Andrew Willis, head of portfolio, index and exchange-traded fund execution at Societe General said UK clients are starting to close the gap with European investors in their use of ETFs.

Willis told Markets Media: “Our business has had a continental focus but has gathered pace in the UK over the last two years. UK clients are starting to use ETFs more, closing the gap with European investors, following a period of engagement between the issuers and UK institutions.”

Last year Societe Generale was the top trader for European ETFs according to Markit MSA, the data provider. The French bank had a turnover of €57bn in European ETFs, followed by Morgan Stanley with €34.8bn and Susquehanna in third place with €24.9bn.

“ETFs are in our DNA. SG and Lyxor have been pioneers in the ETF space and we have consistently been a major liquidity provider,” said Willis. “We are issuer neutral and the propagation of issuers means we can internalise a lot of that flow.”

Lyxor Asset Management, a subsidiary of Societe Generale Group, was founded in 1998. In 2000 Lyxor acquired an exclusive tracker license on the CAC 40, the French blue-chip index, and launched an ETF and index fund business.

Willis said: “We have built our team over several years and our client distribution and advisory, together with our statistical pricing models, means we have consistently been number one for ETF sales and trading.”

Markit MSA said ETFs had a 24% rise in trading volumes in 2013 to €326bn which reflected the increased popularity of the asset class. Equity products made up nearly three quarters of the trading turnover, followed by fixed income products with 17%.

“Seven years ago our ETF business was equity-focused and we would occasionally see fixed income interest,” Willis added. “A theme has been the move into other asset classes and our business is now circa 70% equities as we have seen a year-on-year increase in fixed income and commodity asset types.”

Willis said ETFs suit all types of investors but fast money is attracted to themes and Societe Generale has recently seen interest in country ETFs such as Turkey or India related to current global macro events.

Nicholas Colas, chief market strategist at ConvergEx Group, a global brokerage company based in New York, said in a report that ConvergEx uses the money flow data from US-listed ETFs as a proxy for investor engagement across themes and asset classes.

From the start of this year until January 27, US ETFs had outflows of $8.5bn according to Colas. He said: “In the four years we’ve been writing about ETFs, it has been rare to see a negative sign in front of this data so late in a given month. During periods of real stress, of course. But it is uncommon.”

Equities had the largest redemptions of $7.6bn so far this year, followed by fixed income with $247m and then commodity-based products with $624m.

“It could be that the volatility of the last few weeks have given investors some pause, and hence the liquidations we note here. Other factors – emerging market volatility, for example, may play a supporting role,” Cloas added. “But the key question for investors here and now is really about the strength of the US economy and Federal Reserve policy.”

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