Competition hots up for ETF providers

Exchange-traded funds (ETFs) are making their mark on fund allocation and attracting increased adviser interest, according to one provider.

Much greater focus is being placed on asset allocation – rather than fund selection – in the post-RDR world. Although choosing the right fund remains important, there are reported increases in using model portfolios and in matching risk levels and capacity for loss to asset allocation.

Along with this comes an increased appetite for ETFs. Lxyor, the ETF arm of Société Générale, told Money Management that it plans to make a bigger push into the UK market to reflect this.

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Ben Thompson, director of marketing and partnerships at the firm, said this marks a change in direction. “Lyxor has been a very institutionally-focused brand for the past 10 years or so,” he said. “The RDR has shaken the world up, it has changed our focus.”

Although ETFs have been used by institutional investors for some time, retail investors have only been getting to grips with them over the past few years. But, according to Mr Thompson, advisers are becoming used to the product and understand it much more.

“IFAs are using the ETFs much more than they were pre-RDR and self-directed investors are increasing in number and using them in a cost-effective manner in their own portfolios,” he said.

Several providers have tried to make their mark in the ETF space. Deutsche Bank’s db X-trackers, BlackRock’s iShares and Vanguard are all names likely to pop into advisers’ heads when thinking of key players.

Much of the competition has focused on price, but Lyxor said it will target efficiency: providing the most cost-effective return, including limiting tracking error.

Its latest push saw 17 new funds listed on the LSE on 12 September, bringing its total UK-listed range to 64.

Hundreds of ETFs have been launched over the past decade. Interest peaked in 2010, with a total of 313 made available in the UK market. This year has seen a slower rate of launches, with 48 launched by the end of July.

The market for ETFs is vast, with one index often covered by multiple providers. There are some signs of consolidation however. Credit Suisse’s ETF business was acquired by iShares in July, with several funds merged in September to streamline the firm’s offering.

In addition, iShares announced that it will close 15 equity and commodity ETFs as of 24 October 2013 principally due to low investor demand for the funds. Those being closed are mainly swap-based ETFs ranging from an India Ucits ETF to the more specialist iShares S&P GSCI Dynamic Roll Agriculture Swap fund.