Multi-asset ETFs set to burst into UK market

Two of the fastest-growing areas in investing – exchange-traded funds (ETFs) and multi-asset investment – look set to join forces as an innovative new product type comes to market.

ETF Securities has said it is in discussions with a number of as-yet-unnamed fund managers with a view to launching white-labelled multi-asset ETFs, under the company’s ‘Canvas’ project for building funds.

Multi-asset ETFs could help feed the insatiable demand from financial advisers, who are looking for ways to outsource their investment management operations while keeping their clients’ costs down.

They could also appeal to investors who appreciate the simplicity of ETFs, which are index trackers that can be bought and sold as single stockmarket shares. Such a product would give investors the ability to diversify easily across bonds, property and commodities in a single fund.

In 2003, £13.5bn was invested in European-based ETFs. By 2013, this was more than £240bn, according to Lipper.

Nick Brooks, head of research and investment strategy at ETF Securities, said there were “a few products that could come out as early as March”, including multi-asset ETFs.

“If the world is moving towards the provision of the most efficient products for end investors, [then] we should be moving towards multi-asset ETFs,” Mr Brooks said.

Traditionally indices always tracked single markets, but the creation of multi-asset indices is what makes the multi-asset ETFs possible.

Late last year a company called iNDEXX Markets launched a series of indices that targeted various asset classes at the same time in a bid to match six of the risk levels employed by Distribution Technology in its risk-rating services.

A number of open-ended passive multi-asset funds have also emerged in recent years, most notably Vanguard’s LifeStrategy range. Aviva Investors and L&G Investments also run fund-of-funds structures using trackers.

However, only one multi-asset ETF is thought to be currently listed on the London Stock Exchange: the db x-trackers SCM Multi-Asset Ucits ETF. But its asset allocation is actively managed, whereas the products proposed by ETF Securities would track pre-built multi-asset indices.

Other providers tentatively welcomed the concept last week, but questioned whether there would be sufficient demand.

Tim Hoover, product manager at Vanguard, said: “The question is whether an ETF is the right vehicle for multi-asset. In a traditional ‘balanced’ fund, equities and bonds are rebalanced within the portfolio. Do investors need that in a product that can be traded intraday?”

Carmen González-Calatayud, passive equity product director at HSBC Global Asset Management, said the concept “makes sense” but “requires further development”.