Lookback: ETFs are back in beta vogue

While equity markets tumbled in the period between July 2007 and June this year, exchange-traded funds (ETFs) have doubled their assets as beta investing is back in vogue, says Deutsche Bank.

Futures still take the top spot in the world of mainstream equity index investing but ETFs are catching up. European-domiciled ETFs tracking eight popular indexes totalled more than €55 billion over the period, while futures have also had healthy growth, totalling more than €300 billion. For the futures these figures refer to open interest, three-month rolling average notional.

Futures open interest is more than six times that of the equivalent ETF assets under management, excluding US domiciled S&P 500 ETFs, which totalled more than €100 billion for the above three-year period.Including US domiciled S&P 500 ETFs, ETF assets equalled half of the respective relevant futures open interest notional at the end of the second quarter of 2010.

ETFs tracking the MSCI Europe and MSCI World have been especially popular, increasing their assets under management more than two and three-fold (respectively) over the period.


The ongoing dispute between the Investment Management Association (IMA) and the UK structured products world has reached its next step. Julie Patterson, director of authorised funds and taxation has ruffled the industry’s feathers by questioning the regulation of structured products.

But the UK Structured Products Association (UKSPA) has vehemently disputed these accusations. “It is disappointing that the IMA continues to be outdated with regard to structured products,” the UKSPA says in a statement. It adds that “it is clear that some market commentators continue to require additional education about structured products”.


Modesty step to one side – rampant exuberance is back, or at least at Assénagon. The European asset manager, run by a team that includes two structured products luminaries from what was once Bayerische Hypo-und Vereinsbank, produced a credit newsletter in August telling of a talk by Dr Jochen Felsenheimer. The subject of the outpouring is ‘Uns geht’s prima’, or for those of you whose language skills are mildly rusty, ‘We are doing great’. Let’s get exuberant again.


UK product provider Investec has launched a boutique business, which aims to bring structured products to the high-end adviser community. The first two plans to come out of this subsidiary business are similar to the regular retail offerings but are aimed at a slightly more sophisticated and wealthy clientele, a model that UK plan manager Jubilee also adopted soon after its creation.

“When we established the business in May 2008 the primary focus was always to build a retail mass-market channel... and when the timing was right to build a subsidiary to complement the retail business to service wealth and discretionary managers and high-end IFAs,” explains Gary Dale, head of intermediary sales for structured products at Investec in London. “We didn’t want to lose all the good bits of our retail plans, such as transparency and uncluttered products.”

One of the new products on offer is the Portable Beta, which is a five-year investment, offering differing returns dependent on the choice of counterparty. If Investec is selected as the counterparty, the investor will receive 110% of any upside of the MSCI Emerging Markets Index. If the investor selects Santander, they will get 100% of the rise in the index.

Another is the three-year Geared Returns product, which offers two options and two counterparties. The first gives a 33% return if Investec is the counterparty or a 30% return if Santander is the counterparty, provided the FTSE 100 is higher than its starting level after three years.


Gilliat Financial Solutions has become an associate member of The Federation of European Independent Financial Advisers (FEIFA). The membership will give the firm access to structured product distribution channels across Europe.

“We were keen to expand distribution channels and FEIFA approached us about what they were doing in Europe,” says Adrian Neave, managing director of Gilliat based in London. “Being part of FEIFA gives us access to a reasonably wide, qualified, distribution channel in Europe.”

The companies who partner with FEIFA need to be appropriately regulated, legally structured, and looking to develop business in Europe. “We are firm on due diligence aspects,” says Paul Stanfield, chief executive of FEIFA based in the UK. “However, apart from that, we look for the fit between what our IFAs require and what the companies can provide via products and services.”


Stop the press. Fresh from the interviews for the Structured Products Asia Awards, we can reveal some alarming similarities between all applicants. There are quite a few, but the leading similarity is that all are either client-centric, customer-focused, and most are solution oriented. Who would have thought.