ETFs continue to attract the money - John Redwood

Latest news

ETFs continue to attract the money

John Redwood, Charles Stanley’s Chief Global Strategist, looks at the rising popularity of exchange-traded funds.

By the end of June this year, exchange-traded funds (ETFs) had swollen to more than $3 trillion worth of investments. In recent years more individuals and institutional investors have built portfolios around ETFs. More institutions have used ETFs to gain exposure rapidly to a given asset class or geographical area. More have introduced some ETFs into portfolios where they lack the expertise on the individual shares or commodities or properties they might otherwise buy.

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Latest news

S&P Dow Jones research points to potential gains in VIX ETPs S&P Dow Jones research points to potential gains for VIX ETFs

A note from S&P Dow Jones Indices suggests that the CBOE Volatility Index (VIX) could be poised to increase sharply from this week, citing seasonal trends as well as expectations derived from the VIX futures curve. For investors looking to protect their portfolios from rising volatility, VIX-linked exchange-traded products, such as the Boost S&P 500 VIX Short-Term Futures 2.25x Leverage Daily ETP (VIXL), could provide an effective hedge. Similarly, for traders with shorter time horizons the current calm could present an opportunity to take out speculative long positions in such products, which would profit from an increase in volatility.

Global ETFs assets continue upward march, reaching new record highs Global ETF assets continue upward march, reaching new record highs

Exchange-traded funds and exchange-traded products continued their upward march in July, with global assets reaching a new record high of $3.343 trillion driven by positive market performance and $52.7bn of net inflows. Various new regional record highs were also set, with the US hitting $2.367tn in ETF/ETP assets, Europe reaching $539.2bn, Japan at $191.8bn and Canada at $81.2bn. iShares continues to dominate the market, gathering the largest net inflows in July with $23.5bn, followed by SSGA SPDR with $14.3bn and Vanguard with $7.2bn.

ETF issuer Source overweights Eurozone in multi-asset model portfolio ETF issuer Source overweights Eurozone equities in multi-asset model portfolio

The research team at London-based ETF provider Source favours European equities over those of the US and holds a maximum overweight position in the Eurozone in its multi-asset model portfolio. Although the team is neutral on equities in general, it believes the Eurozone economy is still accelerating and valuations look attractive. Andras Vig, Director in the Source Research team, commented: “While there are pockets of risk in Europe – mostly in banks – we believe the prevailing negative sentiment is not justified.”

Lyxor unveils Europe's cheapest US TIPS ETF Lyxor unveils Europe’s cheapest US TIPS ETF

Lyxor, Europe’s third largest provider of exchange-traded funds, has expanded its range of fixed income ETFs with the launch of the Lyxor US TIPS (DR) UCITS ETF (LSE: TIPU). The fund, which has been listed on the London Stock Exchange, is referenced to the Barclays US Government Inflation-Linked Bond Index and provides exposure to US Treasury Inflation-Protected Securities, or TIPS. The fund will appeal to investors seeking the safety of Treasuries but who are concerned by the prospect of rising US inflation. With a TER of just 0.09% it becomes Europe’s lowest cost US TIPS ETF and notably cheaper than equivalent offerings from iShares and SSGA.

Equities

ESG performing well and in demand, but shortage of ETFs is holding back adoption ESG performing well and in demand, but a shortage of ETFs is holding back adoption

In a recent white paper, exchange-traded fund provider UBS found that ESG (environmental, social and governance) funds were just as good as conventional funds for the same risk. Also called ethical, sustainable or socially responsible, assets under management in ESG-compliant ETFs have risen nearly 45% to $3.4bn in the last 18 months, according to data from BlackRock, parent of iShares. And the trend looks like it will continue. However, a shortage of ETFs is holding back wider adoption, with portfolio managers frustrated by the lack of products on offer. According to Camilla Ritchie, portfolio manager at 7IM: “There are not enough SRI/ESG ETFs for all the different asset classes.”

Commodities

ETF Securities to close global agriculture ETF though sector remains compelling ETF Securities to close agribusiness ETF despite compelling sector fundamentals

London-based ETF Securities will close its ETFS S-Network Global Agri Business GO UCITS ETF at the end of August, but agriculture-focused exchange-traded funds remain a compelling proposition as the global food supply/demand imbalance continues. The fund launched in 2008 but insufficient investor demand – current AUM is £12.4m – has led ETF Securities to decide its relatively small size did not make it worth paying the associated operating costs. Shareholders who have not sold their holding before 31 August will have their shares automatically redeemed for cash.

Fixed Income

First Asset introduces actively managed investment grade bond ETF First Asset launches actively managed IG corporate bond ETF on TSX

Canadian investment manager and exchange-traded fund issuer First Asset has launched the First Asset Investment Grade Bond ETF (Toronto: FIG), an actively managed ETF providing exposure to a high quality, diversified mix of investment grade corporate bonds from issuers in Canada, the US and Europe. The ETF, which has been listed on the Toronto Stock Exchange (TSX), has come about via the conversion of the Marret Investment Grade Bond Fund. Toronto-based Marret Asset Management, which specialises in credit fixed income portfolios, will continue to act as manager to the fund.

Alternatives / Multi-Asset

iSectors launch US-listed actively managed ETF based on flagship allocation model iSectors debuts actively managed multi-asset ETF on Nasdaq

iSectors, a US investment strategist firm, has debuted an actively managed multi-asset ETF designed to optimize investor return and minimize downside risk. Listed on Nasdaq, the iSectors Post-MPT Growth ETF (NASDAQ: PMPT) is based on the firm’s flagship quantitative factor-driven investment model, the iSectors Post-MPT Growth Allocation. “We developed the iSectors PMPT Growth ETF to answer advisors’ call for a more easily accessible form of iSectors Post-MPT Growth Allocation,” noted Chuck Self, Chief Investment Officer of iSectors. “We launched PMPT for risk-averse investors, seeking downturn protection while still benefitting from possible market gains.”

ETF and Index News

CBOE launches first in series of benchmark indices tracking social media trends CBOE launches social media sentiment index based on Twitter traffic

The Chicago Board Options Exchange (CBOE) has launched the CBOE-SMA Large Cap Index (SMLC Index), the first of a series of sentiment-based strategy indices that tracks stocks according to their social media noise. The index, which comprises 25 equally weighted US large cap stocks, is based on research from social media intelligence gatherer Social Market Analytics (SMA). The principles of the strategy are similar to those underlying the Sprott BUZZ Social Media Insights ETF (NYSE Arca: BUZ).