Private clients boost demand for ETFs
Spooked by complicated and often expensive financial products, many of Europe’s private client investors are piling into exchange-traded funds as they dump exposure to structured products.
No more has this been the case than in Switzerland, where the Swiss Stock Exchange said demand for ETFs grew more than 90% in October, compared with the previous month, bringing the amount invested in them to Sfr7.6bn (€5bn).
Otto Kober, head of research in Switzerland for Lipper, the funds research company owned by Thomson Reuters, said ETF uptake has been acute in Switzerland as investors flee riskier investments.
He said: “Demand for ETFs has been strong, but commodity funds have particularly caught the Swiss imagination.”
Swiss bank ETFs experiencing biggest demand, according to Kober’s research, include Zurich Cantonal Bank, whose precious metal ETFs have had large inflows. Credit Suisse is also a big issuer in Switzerland.
ETFs are investments traded on stock markets. Most track stock market indices and hold assets such as stocks or bonds. They trade at about the same price as the net asset value of their underlying assets over the course of the trading day.
Deborah Fuhr, global head of ETF research and implementation strategy at Barclays Global Investors, which sells ETFs through its iShares brand, said there have been inflows of $5bn (€4bn) across all ETF markets in Europe in September. She said: “While total assets under management in the product has fallen 4.1% this year – compare that with the more than 25% fall in the MSCI index.”
Fuhr predicted assets under management in ETFs will reach $1 trillion by next year, and double that by 2011. There is around $800bn in assets under management in ETFs worldwide.
Speaking at Financial News’ Investing in ETFs Conference in Frankfurt this month, Fuhr said: “Investors are concerned about counterparty and issuer exposure and prefer the transparency of ETFs, which combine the ability to trade with multiple counterparties and the ability to trade at any time of the day, among other advantages.”
Christopher Aldous, chief executive of UK-based wealth manager Evercore Pan-Asset Capital Management, said: “ETFs will sweep the private client market and they have the potential to bring about widespread transformation. Charities, endowments and private clients in the US have embraced ETFs and I expect this demand to be echoed in the UK.”
Much of the money flowing into ETFs is from structured products, which have suffered from high levels of cash withdrawals since the onset of the credit crunch, but particularly during October when financial markets were inflamed.
Money exiting structured products accelerated in Switzerland during October, with total volumes traded on the SWX falling 14% month-on-month.
The movement out of structured products in the country comes amid an investigation by the Swiss banking regulator into the sale of structured products by Lehman Brothers to clients at Credit Suisse and other local banks.
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