ETFs enter transition
EUROPE - Pension funds are beginning to look at exchange traded funds as a potential investment for transition management.
According to officials at iShares, the brand behind Barclays Global Investors' European ETF operation, pension fund managers have begun to use ETFs as a cash management tool once mandates are withdrawn from one asset manager but have yet to be handed to another.
ETFs are a basket of securities, usually representing a benchmark index, which can be treated as easily as shares.
Until now, European pension funds have tended to use ETFs, in the main, to gain short-term exposure to specific sectors without altering their sector weightings or as a way of reducing their liability costs by lending securities and earning commission for doing so.
Axel Lomholt, senior portfolio manager at BGI with specific responsibility for building portfolios at iShares, said it is unclear exactly how much pension mandate transition money is moving through ETFs, but conversations with professionals about the concept are increasing.
"We have seen in Europe a high degree of understanding and implementation of ETFs so where as five or six years ago it was traditional to use ETFs for getting exposure to asset classes in a cheaper way, the more sophisticated investor such as pension funds are beginning to see the benefits of ETFs for transition purposes," said Lomholt.
"It is possible they could be investing high sums of money but we are unable to say for definite at this stage. They are being used as warehousing, as an active mandate for hedging instruments. And there is still some way to go to but pension funds are increasingly looking at ETFs as we are starting to have engagement conversations with pension funds and consultants about transition managers using ETFs so our focus is now all about educating the market about their advantages.
News about the use of ETFs comes at the same time as ETF Securities launches an exchange traded precious metals platform on the Euronext Paris and Amsterdam bourses.
The four physical metals securities are listed as the ETFS Physical Platinum, the ETFS Physical Palladium, the ETFS Physical Silver and the ETFS Physical Gold while the precious metals ETFs basket - comprising 20% platinum, 12% palladium, 26% silver and 24% gold - is labelled the ETFS Physical PM Basket.
In other news, iShares has also launched the iShares Extreme 40 Sailing Series Cup - a European sailing race of boats described as the "Formula 1" of trimarans.
The seven-team fleet will begin its first race in Munich later this month, before moving to Marseille in July, Cowes in the Isle of Wight - an island off the South coast of England - in August, Amstedam in September, along with endurance races in Geneva and on Lake Garda and an exhibition race at the International Fund Forum in Monaco in July.