Index InvestIng ActIvely mAnAged etfs
sUmmARy
An increasing number of
large and small providers
have helped the UK ETF
market grow exponentially
in an incredibly short space
of time.
Starting with plain vanilla
products tracking the major
indices such as the FTSE and
S&P, investors can now use
ETFs to short an index or more
actively asset allocate.
There is still plenty of
room for new providers
and products to help
grow this market further.
s&P equity-weighted Index vs s&P 500
%
150
120
90
60
30
0
-30
Jan ’03 Jan ’04 Jan ’05 Jan ’06 Jan ’07 Jan ’08
1 Jan ’03 – 1 Oct ’08. Source: SPA ETF, Reuters, Standard & Poor’s
ucts at S&P Index Services.
“There is true beta
which is the entire market,
with all the developed,
emerging and frontier markets
all in one piece. But
with the popularity of ETFs
there is the desire to offer
to financial professionals
and sophisticated institutional
investors the ability
to fine-tune their exposures
in a way they feel is
going to maximise return.
“So rather than, say,
offer the full package they
provide one that comes in
blocks that can be put
together by the investor.”
Referring to the proliferation
of new products,
he describes the US market
as already “over-ripe”, with
681 ETFs as of September
this year, compared with
343 at the end of 2006.
Globally, according to
Steadman, over the same
period the number has
grown from 714 to 1,499.
He adds that in the US,
something like 40 products
have closed down.
l Sharp focus
As an example of how
fine-tuned some of the
propositions in the US are,
he cites the example of
Healthshares ETF. They are
focused on very specific
healthcare sub-sectors such
as cancer research. While
S&P Equity-weighted
in August it “reorganised”
its range, closing 15 of the
19 products available, it
leaves four specific ETFs
open – those relating to
cancer research, European
drugs, diagnostics and an
enabling technologies ETF.
This degree of product
specificity could open up
the UK market to provide
investors with an equally
well-defined range of ETFs
to choose from with the
potential for new players
increasing as well.
This growth in provider
competition is unlikely in
the US given the sheer
dominance of Barclays
40 PORTFOLIO ADVISER [www.portfolio-adviser.com] DEcEmbER 2008
S&P 500
london-listed etf securities products
ETFs Base UK distributor
currency status
WNA Global Nuclear Energy $ Yes
Janney Global Water $ Yes
S-Net ITG Global Agri Business $ Yes
DAXglobal Alternative Energy € Yes
Russell Global Coal $ Yes
Russell Global Gold $ Yes
Russell Global Steel $ Yes
Large cap
Russell Global Shipping Large Cap $ Yes
Russell 1000 $ Yes
Russell 2000 $ Yes
Dow Jones STOXX 600 Basic Resources € Yes
Dow Jones STOXX 600 € Yes
Oil and gas
Dow Jones STOXX 600 Utilities € Yes
As at 6 Nov ’08. Source: ETF Securities
marketgrader 40 & large cap performance
250
200
150
% 100
50
0
Russell 2000
S&P 500
-50
Jan ’03 Jan ’04 Jan ’05 Jan ’06 Jan ’07 Jan ’08
1 Jan ’03 – 1 Oct ’08. Source: SPA ETF, Reuters, Standard & Poor’s
Global Investors, Vanguard
and State Street as well as
the exclusivity of the deals
they have struck with the
index providers.
Steadman says: “In the
end there is going to be a
vast field with a lot of
room for a lot of players to
graze and a lot of people
are going to make money.
Those companies that have
a strong commitment
organisationally to this
space are going to survive.
What you are also going to
see is a lot of smaller companies
coming to the
market who opportunistically
are trying to make a
MG40
MG Large Cap
space for themselves by
differentiating their product
offerings.”
l Track to the future
An example of the range of
products available is shown
by ETF Securities. It offers
a range of exchange-traded
commodities (ETC) backed
by the commodity itself as
well as those that track
ETC futures. It has recently
launched its range of ETFs
onto the London Stock
Exchange that include
products linked to water,
coal, nuclear energy and
shipping (see table).
Db-x trackers, Deutsche
Bank’s ETF arm, has taken
the active product design
one stage further with its
short ETF range.
Head of db x-trackers,
UK, Manooj Mistry,
explains: “We offer the
building blocks so if someone
wants to go short the
FTSE 100 they can use our
short FTSE 100 ETF as an
alternative to derivatives.”
ETFs in the UK have
developed quickly from
plain vanilla index-trackers
to active, fundamentally
driven products. They
offer an attractive alternative
to mutual funds and
structured products and
are likely to play an
ever-increasing part in
portfolio design.
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