InvestmentsNov 11 2015

Fund groups approach Source over ETF tie-ups

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Fund groups approach Source over ETF tie-ups

Exchange-traded fund provider Source has been approached by more asset managers seeking to partner with the firm in recent months, a sign of active firms’ burgeoning interest in the ETF space.

Source has existing partnerships with fund groups include Pimco, Ashmore and Man GLG to offer products which range from active ETFs to smart beta products. The partnership model is distinct from many peers: most ETFs tend to be managed by in-house by firms who have the scale to drive down costs incurred by their products.

Though Source does run the majority of its products itself, interest in its joint ventures is growing, according to chief marketing officer Jim Polisson.

Mr Polisson, a former head of marketing at iShares who joined Source this May, said two asset managers had contacted him in his first five months regarding such ventures, though no agreements have been made.

“Firms which want to have an ETF capability but not a full resource or salesforce have been approaching us. We are distinct because we are not in competition with these businesses,” he said.

Of the 30 products Source currently offers to the UK adviser market, four are run in conjunction with other asset managers: two short duration, actively managed fixed income ETFs run by Pimco, and a pair of Goldman Sachs smart beta ETFs which track “factor” indices constructed by the investment bank.

A number of active managers have expressed interest in the moving into the UK ETF market in recent months, though two of the most high profile potential movers of recent months - Legg Mason and BMO Global Asset Management - said they would use the passive capabilities which exist elsewhere in their businesses.

BMO subsequently announced its arrival into the market on November 9 with the launch of nine ETFs for UK investors.

Source, for its part, began a concerted push into the adviser market this autumn, 18 months after US private equity group Warburg Pincus took a majority stake in the business and six after the departure of co-founder Ted Hood.

“The goal is to expand into new markets and new segments. We are putting an enormous focus on advisers and wealth managers in the UK,” Mr Polisson said.

The company intends to add more products to its adviser range in the coming months, he added.

ETF providers in the UK received an additional boost last week when Fidelity said it would list more ETFs on its FundsNetwork platform.

Dominic Clabby, UK director at the business, said the move was a landmark in the evolution of ETF take-up among advisers.

Though the likes of Cofunds and Old Mutual Wealth are yet to list ETFs on their own platforms, Mr Clabby predicted other developments could prove equally significant in accelerating interest in the products.

He pointed to the falling cost of trading ETFs on other platforms as an indication that platforms anticipate a greater level of demand for the products in future. On November 10 Novia announced a tie-up with Winterflood Business Services which will slash trading costs for investors.

“These costs are falling, but platforms are not going to give up margin unless they expect more volume [to materialise],” he said.

“There is over £500bn in ETF assets in Europe. At some point platforms will want to know how to make money from this.”

Mr Polisson added: “The same thing happened in the US. The question is where and when will the tipping point arrive in the UK?”

Big picture: Pimco or Man GLG or Ashmore logo?

S3: Filed

S10: $62bn level of ETF/ETP net inflows across Europe in 2014

$62.4bn, level of ETF/ETP net inflows across Europe in first nine months of 2015