ETF Risk European Rankings 2013 announced

The inaugural ETF Risk European Rankings 2013 names the best providers in the exchange-traded fund (ETF) industry, as voted by institutional investors, consultants, trading houses, ETF issuers, research firms and exchanges

ETF Risk’s inaugural annual European rankings of exchange-traded fund (ETF) issuers and service providers took place during the month of August and 376 respondents participated.

Independent ETF consultant Feargal Dempsey says: “There are several key players in the ETF ecosystem and, while the factors influencing choosing the ‘best of’ will be common across categories, there will be different weightings attached to those factors depending on the particular category. So, for example, resources and systems to support product development are a key promoter requirement but will be particularly important in choosing a custodian and administrator, or having the support of the index provider. In the case of index providers, significant weight is also attached to the recognition of the index in the marketplace.”

Among those honoured, MSCI was voted Best Index Provider for ETF Products. The win is the latest endorsement for MSCI, which was also named as benchmark of choice by 88% of 179 US institutional funds surveyed and 100% of investment consultants in the fourth annual Greenwich Associates study, Institutional Investors’ Relationship with ETFs Deepens.

Deborah Yang, head of MSCI’s European index business, says nearly 700 ETFs use MSCI as a benchmark, including three of the top 10 ETF launches in the past year. The benchmark provider’s recent product development has included a focus on Quality Mix Indices, an equal-weighted combination of the MSCI Value Weighted, MSCI Minimum Volatility and MSCI Quality indexes in a single composite index. The MSCI Quality Mix Indices aim to represent the beta performance of quality, value and low-volatility risk strategies across global equity markets.

Yang says the products benefit from internal crossing and a potential reduction in turnover and increased diversification benefits. Economic exposure indexes are another focus – instead of looking at country of incorporation of securities, MSCI drills down into country revenue exposure. She says: “In Europe, for example, 26% of company revenues come from emerging market countries.”

Pioneers in the fixed income space – with the first cash money market ETF in 2007 – as well as leading more recently in products based on credit default swaps and eurozone periphery government debt exposure, Deutsche Bank was voted by respondents as Best ETF Structuring and Distribution House. Also named Best Emerging Market ETF Provider, DB X-Trackers has more than 60 emerging market products with an MSCI Turkey ETF, the most recent addition, following coverage in Pakistan and Bangladesh.

Manooj Mistry, head of exchange-traded products, Europe, Middle East and Africa, at Deutsche Asset & Wealth Management, says the provider may, at some stage, consider offering more granularity in Africa and exposure to the Middle East and central and eastern Europe – where its range boasts regional products but lacks coverage on an individual country basis.

He says: “So far, we haven’t seen a strong demand and a lot of those markets don’t have the liquidity yet to support an ETF. Many times, a stock exchange may have a number of companies listed but only a handful have real trading volume. Some countries also have restrictions in terms of foreign ownership and currencies, as well as settlement and logistical issues.

“We did look into launching a Nigerian product as someone approached us with an index idea but, at the moment, there is not sufficient liquidity nor the level of transparency we would need to set up a Nigeria-only ETF. Maybe, in a couple of years’ time, Nigeria could be sufficiently transparent in terms of how dividends are paid and corporate actions get carried out, which would then support the creation of a tradable product.”

Named Best Trading House for ETFs, Netherlands-based Flow Traders says it has plans to enhance its capabilities to be able to provide better prices and higher liquidity. It says it is in close contact with issuers, depositary banks and investors to improve the stock borrowing and lending market for ETFs, which will also have a positive impact on ETF liquidity and pricing.

Looking forward, Bernardus Roelofs, global head of ETF sales trading at Flow Traders, says over-the-counter ETF trading is set to change as more investors request prices through request for quote (RFQ) systems, such as Tradeweb and Bloomberg RFQ, bringing automated order flow and the ability to ask several ETF market-makers for the best price at the same time and ensure best execution.

The trading house believes new fixed income ETFs and enhanced indexes possess the biggest potential while, on the issuer side, pressure on management fees will continue and there will be further closing of small and unprofitable ETFs.

The Best ETF Trading Platform for Institutional Investors, Deutsche Börse Xetra, introduced ETFs in 2000, when it listed just two products – compared to more than 1,000 today. During that time the platform has seen assets under management in its ETF segment grow from €400 million to €208 billion by August 2013. The order flow on Xetra reflects the interests of more than 4,000 authorised traders and 236 banks, finance companies and financial service providers from 18 countries. Around 70% of the ETF order flow originates outside of Germany, demonstrating the international character of the segment.

Deutsche Börse says trading costs have become increasingly important when comparing ETFs across markets and, correspondingly, it has established liquidity incentive programmes to facilitate the implementation of cost-effective trading and investment strategies within a liquid trading environment. It claims the Xetra Liquidity Measure – a means of improving transparency for market participants by estimating market impact in advance – shows a decrease in implicit transaction costs of 80% for the 20 most liquid equity ETFs on Xetra from 2003 to today.

On being voted Best Custodian for ETFs, Peter O’Neill, executive vice president and head of State Street, Europe, Middle East and Africa, says the bank is currently working on an initiative that will see all ETF settlement across Europe move to a single international central securities depository (CSD). ETFs in Europe are currently listed on multiple exchanges in a number of countries, the majority of which have their own specific CSDs, leading to authorised participants (APs) and custodians having to move ETF securities cross-border in order to facilitate settlement. “This solution will move almost all liquidity to the European international CSD, reducing spreads across ETF products and also making the concept of T+1 settlement in Europe the norm, reducing transaction charges for ETF providers and market-makers, reducing the risk of settlement failures and increasing the overall flow of assets into ETFs,” he says.

The custodian has also recently implemented a multi-basket dealing model, which allows an AP to place orders on a specific creation and redemption basket dependent on the order type, and has rolled out in Europe a global order-taking trade platform for APs.

iShares was ranked by survey respondents as Best New Index-based ETF Provider.

Vangheli Lakiotis, senior portfolio analyst, investment solutions at Switzerland-based Lloyds Banking Group, says, with respect to index-based ETF providers, he prefers those that take minimal and well-managed counterparty risk whatever the replication method, display tight tracking error and total expense ratios and have competent sales staff who can present the products. He also rates highly a provider’s ability to quickly respond to queries and help with execution.

Matthijs Aler, director at Netherlands-based banking platform Ohpen, meanwhile, says he prefers asset managers that can provide investors with “excellent and detailed data on the index they are tracking. Crucial information regarding fiscal issues, such as withholding tax and the way their fiscal and legal structure, enables them to get the best results for the investor is important. Furthermore, I feel that transparency on tracking error, exceptional revenues and exceptional costs and taxes that influence performance are key to better understanding the ETF.”

The Ossiam Minimum Variance range was voted Best New Thematic ETF. By the end of August, Ossiam managed $1.2 billion in ETFs and institutional mandates. Bruno Poulin, chief executive officer of Ossiam, says the firm was the first European asset manager to focus on specialist ETFs, the first to list minimum variance ETFs globally and the first to list equal-weight ETFs in Europe.

In September, Ossiam extended its risk-based solutions framework to commodities with the launch of the Ossiam Risk-Weighted Enhanced Commodity ex. Grains TR Ucits ETF.

Click here to view the ETF Risk 2013 European rankings

 

About the rankings

ETF Risk's rankings and survey took place during the month of August 2013 and 376 respondents participated.

ETF Risk polled institutional investors, family offices, wealth managers, consultants, trading houses, ETF issuers, research firms and exchanges across Europe to determine the status of the market and the best providers in the ETF business. Participants were asked a series of questions relating to the operation of the ETF market and invited to vote for their top ETF issuers and service providers.

No weighting system was used, as respondents only submitted one vote per category. Only categories with a sufficient number of votes are included in the final poll.

When aggregating the results, we look to strip out what we consider to be invalid votes. These include people voting for their own firm, multiple votes from the same person or IP address, votes from people using non-work email accounts, votes by people who choose the same firm indiscriminately throughout the poll, votes by people who clearly do not use the product, and block votes from groups of people at the same institution voting for the same firm.