First ETF to track FTSE All-Share
UK - London is set to become one of the largest ETF trading places in Europe, according to Lyxor Asset Management.
The fully-owned subsidiary of Société Générale has just launched its first three exchange traded funds (ETF) in the UK, one of them tracking the country's largest benchmark, the FTSE All-Share index.
Foreign-domiciled providers of ETFs have been able to enter the UK market on a level-playing field since February, following the government's decision to scrap stamp duty on non-British providers.
Lyxor Asset Management was the first to make use of the change in the regulatory environment.
"We were always anxious to come to the UK," Dan Draper, head of Lyxor ETFs UK and Ireland, told IPE.
He is convinced with the stamp duty obstacle removed London will soon become the largest trading place for ETFs in Europe.
With the three new ETFs tracking UK indices, Lyxor hopes to attract more UK clients, including pension funds. But Draper said he has also seen interest from other institutional investors across Europe.
"Pension funds across Europe which are running a global portfolio and want exposure to the UK - this is an easy way for them to do it."
He added the FTSE All-Share index includes many of the world's leading companies, for example BP or Vodafone.
According to Draper, the main use of ETFs by pension funds as cash management tool is very often only the first step.
"Transition management is a great way to introduce ETFs to pension funds," he explained. "Once a pension fund uses an ETF even for a few days, not only do the fund managers see the benefits but so do middle and back office [operations] as well as customers. Pension funds may then start to think about using ETFs to get exposure to markets like Asia or emerging markets where it is really hard to find a good fund manager."
Other advantages Lyxor's ETFs may offer over other index-tracking funds is shown mainly in their short-term use as the annual fee for ETFs accrues on a daily basis. This means an ETF with a 30bp annual fee, which is more than for the average index-tracking fund, will cost just 10bp when held over four months.
Lyxor Asset Management is currently running 80 ETFs all across Europe including one tracking the Dow Jones EuroStoxx50. While the firm was created in 1998, it has since accrued €22.2bn in assets for its European ETF business since the launch of these funds in Europe in 2001.
Statistics collected by the asset manager reveal there are currently 305 ETFs listed on European stock exchanges with a total of €76.6bn under management - a 61% growth on last year.