etfexpress Special Report etfexpress Awards 2017

special reportwww.etfexpress.com

March 2017

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etfexpress Awards 2017

etfexpress GLOBAL AWARDS Special Report Mar 2017 www.etfexpress.com | 2

CONTENTS

PublisherManaging Editor: Beverly Chandler, [email protected] Contributing Editor: James Williams, [email protected] Online News Editor: Mark Kitchen, [email protected] Deputy Online News Editor: Emily Perryman, [email protected] Graphic Design: Siobhan Brownlow, [email protected] Sales Managers: Simon Broch, [email protected]; Malcolm Dunn, [email protected]; Sales Manager (Private Equity Wire & Property Funds World): Christine Gill, [email protected] Marketing Administrator: Marion Fullerton, [email protected] Head of Events: Katie Gopal, [email protected] Head of Awards Research: Mary Gopalan, [email protected] Chief Operating Officer: Oliver Bradley, [email protected] Chairman & Publisher: Sunil Gopalan, [email protected] Photographs: Chris Mikami, www.mikami.co.uk Published by: GFM Ltd, Floor One, Liberation Station, St Helier, Jersey JE2 3AS, Channel Islands Tel: +44 (0)1534 719780 Website: www.globalfundmedia.com

©Copyright 2017 GFM Ltd. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.

Investment Warning: The information provided in this publication should not form the sole basis of any investment decision. No investment decision should be made in relation to any of the information provided other than on the advice of a professional financial advisor. Past performance is no guarantee of future results. The value and income derived from investments can go down as well as up.

AWARDS 2017

In this issue…03 etfexpress Global Awards 2017 results

04 ETFs enjoy full range of drivers for growthBy Beverly Chandler

07 Amundi ETFBest Fixed Income (all excluding cash) ETF Management Firm & Best Emerging Markets Equity ETF Management Firm

09 Nikko Asset ManagementBest Asia Pacific Equity ETF Management Firm

11 ETF SecuritiesBest Currency ETF Management Firm & Most Innovative European ETP Provider

12 Lyxor Asset ManagementMost Innovative European ETF Provider

14 PowerShares by InvescoBest Smart Beta ETF Provider

16 OptiverBest European ETF Market-Maker

18 EURONEXTBest European Exchange for Listing ETFs

20 STOXX LtdMost Innovative Index Provider

22 TradewebBest OTC Trading Platform for Institutional Investors


RESULTS

AWARDS 2017 The winners

Best Fixed Income (all excluding cash) ETF Management FirmAmundi ETF

Best Fixed Income cash (money market) ETF Management FirmPIMCO

Best North America Equity ETF Management FirmWisdomTree

Best Emerging Markets Equity ETF Management FirmAmundi

Best Europe Equity ETF Management FirmUBS

Best Global (ex-US) Equity ETF Management FirmBlack Rock iShares

Best Asia Pacific Equity ETF Management FirmNikko Asset Management

Best Global Equity ETF Management FirmBlack Rock iShares

Best Currency ETF Management FirmETF Securities

Best Multi-Asset ETF Management FirmSPDR ETFs State Street Global Advisors

Best Alternative ETF Management FirmIndex IQ

Most Innovative North American ETF ProviderVanEck

Most Innovative European ETF ProviderLyxor Asset Management

Best Smart Beta ETF ProviderPowerShares by Invesco

Most Innovative North American ETP ProviderWisdomTree

Most Innovative European ETP ProviderETF Securities

Most Innovative North American ETN Provider Velocity Shares

Most Innovative European ETN Provider Boost

Best European ETF Market-Maker Optiver

Best North American ETF Market-MakerCantor Fitzgerald

Best Asia-Pacific ETF Market-MakerFlow Traders

Best North American Exchange for Listing ETFsBATS

Best European Exchange for Listing ETFsEURONEXT

Most Innovative Index Provider Stoxx

Best OTC Trading Platform for Institutional InvestorsTradeweb

Best ETF Research ProviderMorningstar

Best ETF DistributorForeside

Best North American ETF Fund AdministratorBrown Brothers Harriman & Co

Best European ETF Fund AdministratorState Street

Best ETF Global CustodianBNY Mellon

Best ETF Global Liquidity Provider Jane Street

Best ETF Marketing/Public Relations FirmMacmillan Communications

Best ETF Legal & Compliance FirmDechert


invested in 6,630 ETFs/ETPs against HFR’s figures for hedge funds, showing assets of USD3.018 trillion invested in 8,326 hedge funds.

Performance is deemed a key driver in ETF supremacy with the HFRI Fund Weighted Composite Index at 5.5 per cent over 2016 while the S&P 500 Index achieved 11.9 per cent. And hedge fund performance has struggled for the last six years according to the data.

It is of course in the fees’ arena that hedge funds take their harshest battering. This year ETFs have cut their fees down to

The battle for dominance between the active and passive fund management industry took another turn this month with the news that 2016 saw the global ETF/ETP industry grow faster than the global hedge fund industry according to ETF data providers ETFGI.

ETFs came in with assets USD530 billion larger than the assets invested in the global hedge fund industry, and the company notes that this achievement is more significant as the ETF industry is just 27 years old against the 68 years old hedge fund industry.

The total ETF assets at the end of 2016 sits at a record level of USD3.548 trillion

ETFs enjoy full range of drivers for growth

By Beverly Chandler

OVERV I EW


OVERV I EW

challenging interest-rate environment.The report found that some 47 per cent

of bond ETF investors expected to increase their allocations to the fund in the year ahead, while investors were already investing an average 21.2 per cent of total assets in ETFs—up from the 18.9 per cent of total assets reported in 2015.

Approximately half the institutions in the study used ETFs for liquidity management and nearly the same share employed ETFs in risk management or overlay strategies.

Other drivers included straightforward replacement of active managers with 38 per cent of institutional ETF users replacing other vehicles in their portfolios, including active mutual funds and derivatives positions.

basis point figures with the average annual cost for ETFs/ETPs at 31 basis points, around a third of one per cent, while hedge funds struggle to get 2 and 20 per cent as in the old days but haven’t achieved significant fee reductions.

Investor groups into ETFs are shifting too. In the US, the ETF investor community was originally dominated by retail investors, but studies are increasingly revealing institutions stepping up to dine at the ETF table.

A new report from Greenwich Associates finds that institutional assets are flowing into ETFs as US institutions integrate ETFs into essential functions ranging from risk management and liquidity enhancement to the generation of income and yield in a 15

With the lowest costs in the market,*you will love Europe, again.

INVESTORS MAY BE EXPOSED TO THE RISK OF CAPITAL LOSS and to risks linked to the volatility of the securities that make up the ETF’s reference index (which may cause the price of the investment to fl uctuate signifi cantly). Investors may lose more than they invest. Before any subscription, potential investors must review the regulatory documentation for the ETF approved by the French Financial Markets Authority (the “AMF”), including the current Key Investor Information Document (“KIID”), available in English at www.amundietf.com or upon request from the management company’s registered offi ce.For Professional Investors Only. This document is being issued inside the United Kingdom by Amundi Asset Management which is authorised by the AMF under registration no. GP04000036 - 90 boulevard Pasteur, 75015 Paris, France and subject to limited regulation by the Financial Conduct Authority under number 401883. The information in this communication should be construed as non-contractual commercial information that does not constitute investment advice, an investment recommendation or an invitation to buy or sell shares in the ETF. The ETF is approved by the AMF and is a recognised scheme for the purpose of section 264 of the Financial Services and Markets Act 2000 and may be offered to the public in the UK. The ETF aims to replicate as closely as possible the performance of its reference index (MSCI Europe), whether such performance is positive or negative. The ETF is not sponsored, approved, sold or promoted by the index provider. The index provider makes no statements on the suitability of an investment. This document is not aimed at residents or citizens of the United States of America and “U.S. Persons”, as defi ned by the Securities and Exchange Commission “Regulation S” of the U.S. Securities Act 1933, included in the Prospectus of the ETF. The policy regarding portfolio transparency and information on the Funds’ assets are available on amundietf.com. Indicative net asset value is published by stock exchanges. Shares purchased on the secondary market cannot usually be sold directly back to the Fund. Investors must buy and sell shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. Investors may pay more than the current net asset value when buying shares and may receive less than the current net asset value when selling them.(1) Amundi’s Scope - No.1 Continental European asset manager based on global assets under management (AUM) and the main headquarters being based in continental Europe - Source IPE “Top 400 asset managers” published in June 2016 and based on AUM as at December 2015.* As of 19.12.2016: ongoing charges at 0.15%, the cheapest worldwide based on a comparison with ETFs replicating MSCI Europe, without taking into account the fees applied by fi nancial intermediaries, as these fees are borne directly by the investor - Source Amundi ETF/Bloomberg. Photo credit: Getty Images. |

As the leading European asset manager,(1) Amundi offers you the lowest cost MSCI Europe ETFs in the market.*

Ongoing charges: 0.15%*

amundietf.com

CheAper*, SmArter

GB_AP_Amundi_Actions_Europe_ETFexpress_210x297+3.indd 1 20/02/2017 14:33


Amundi ETFBest Fixed Income (all excluding cash) ETF Management Firm &

Best Emerging Markets Equity ETF Management Firm

institutions go more into the details of how it works, how is the index built, what is the methodology as they need to follow a strict due diligence process – our setup and our product offering enables to reach both segments.”

2016 was a very successful year for Amundi’s fixed income product range too, especially with its floating rate note ETF range, proving very popular.

“A Floating Rate Note (FRN) is a debt instrument with a variable interest rate: its coupon is composed of a short term reference rate and a fixed spread. As the reference rate increases or decreases so does the coupon, which is adjusted on a regular basis

Not only FRN’s low duration shields investors from the negative price impact of increasing rates, but their floating coupon allows them to offer an increasing yield.

The Amundi floating rate note products come in three versions, providing exposure to Euro-denominated and USD-denominated FRNs, and a specific share class providing currency hedge Euro/USD, exposed to US corporate FRNs.

Amundi’s range of FRN ETFs has already more than EUR2 billion assets under management4, confirming the appetite for those instruments in today’s rate environment. The Amundi ETF Floating Rate USD Corporate UCITS ETF – Hedged EUR classified as the 2016-launched ETF which reached the highest AUM by the year end5. n

1. Source: Amundi ETF, Indexing & Smart Beta, based on Deutsche Bank European ETF Market Review 2016.

2. Source: Amundi ETF, Indexing & Smart Beta as at 31/12/2016. Calculated on similar exposures.

3. For Global and Region Emerging Markets, ongoing charges at 0.20%, the cheapest on the European market. Source Amundi ETF/Bloomberg as at 31/12/2016: comparison with ETFs strictly replicating the same index (i.e. MSCI), whatever their name, without taking into account the fees applied by financial intermediaries, as these are borne directly by the investor.

4. Source: Amundi ETF/Bloomberg as of December 2016.5. Source: ETFGI European ETF and ETP industry

insights December 2016. AUM at 31/12/16.

Amundi ETF has enjoyed a very good year in 2016 and Matthieu Guignard, Global Head of Product Development and Capital Markets – Amundi ETF, Indexing & Smart Beta reports that the beginning of 2017 is looking good too.

“We had very good net new assets last year, collecting over EUR4 billion, mainly on Emerging Equities, Smart Beta and Fixed Income ETFs,” Guignard says. “Our market share has grown to almost 5 per cent1 in 2016 and Global and Regional emerging equity ETFs actively contributed to this achievement, by attracting up to 40 per cent2 of the net flows in the market. This is due to our position in terms of pricing, as we offer the lowest fee level of 20 basis points on our Emerging Equity ETFs3,

Guignard comments that the low cost structure, efficiency, transparency and good performance of ETFs have all contributed to their growth as a sector. Smart Beta has been important for Amundi over the year as well. “Last year, Smart Beta ETFs collected EUR7.9 billion in Europe and Amundi collected over EUR1.2 billion of that.”

“If the beginning of the year was rather focused on Minimum Volatility strategies, in the end Value factor won over the bulk of 2016’s net new assets,” Guignard says.

The interest for multi factor exposures was also remarkable last year and continues to attract investors, especially large institutions. “It started with the largest institutions like pensions or sovereign funds that are usually advanced in these, but afterwards other institutions have started showing a lot of interest in those strategies both as complement to traditional passive management or switching from active to Smart Beta strategies.”

Guignard also observes that retail investors are also interested in this market, but the way these products are marketed to them is different.

“Retail investors want to know the benefits in terms of the risk/return profile while

Matthieu Guignard, Global Head of Product Development and Capital Markets – Amundi ETF, Indexing & Smart Beta

AMUND I ASSET MANAGEMENT

Investment in a Fund carries a substantial degree of risk. Criteria, subscription conditions and legal documentation are available on www.amundi.com.

This document is not intended for citizens or residents of the United States of America or to any “U.S. Person” , as this term is defined in SEC Regulation S under the U.S. Securities Act of 1933.

Transaction cost and commissions may occur when trading ETFs.

This document is only directed at persons who are professional clients or eligible counterparties for the purposes of the FCA’s Conduct of Business Sourcebook.

YOUR GOALS, OUR COMMITMENT.emea.nikkoam.com

Important Information: For professional investors only. This is for marketing and information purposes only and is not intended to be an offer, or a solicitation of an offer, to buy or sell any financial instruments. The products or securities described herein may not be for sale in all jurisdictions or to certain categories of investors. Past performance is not a guide to future performance. Issued by Nikko Asset Management Europe Ltd. Authorised and regulated in the UK by the Financial Conduct Authority. Number 122084

As the experts in Asian ETFs, we’ve cultivated unique solutions that deliver strength and growth• One of the largest ETF solutions providers in Asia

• Grew assets under management by 29%

year-on-year in 2016

• Recognised as “Japan’s ETF Manager of the Year”

by Asia Asset Management in 2016

• Consecutive winner of ETF Express awards

(2010, 2011, 2013, 2014, 2015, 2016, 2017)


Nikko Asset ManagementBest Asia Pacific Equity ETF Management Firm

Geoffrey Post, head of international product development at Nikko Asset Management, reports that 2016 continued to be a real success in terms of the firm’s ETF business with assets up from USD26.5 billion to USD34.7 billion.

These figures sit within the firm’s overall index business of USD48 billion, the largest ETF is the Nikkei 225 ETF with USD17 billion in assets.

Post says: “It’s been another good year. Japan is home to the second largest stock market in the world and continues to attract investors. 2016 saw modest export-driven growth. Looking towards 2017, we are hoping that the domestic economy will see real expansion on the back of global trade.”

Post believes that President Trump and Trumponomics, including tax reform and deregulation in the US, should be beneficial for trade, particularly for Japan which is a major partner to, and a significant investor in, the US.

“We recognise there is a risk if the US’s actions disrupt global trade by overturning the established global trade order. We are cautiously optimistic but there is risk.”

Currency is very important for Japan as there is wide spread anticipation that the US dollar will remain strong compared to the Yen.

“This is a function of the US rate cycle

and also the Japanese government’s apparent total commitment to a negative interest rate policy. If they maintain that and US rates rise, that will impact the Yen.”

Nikko Asset Management’s new products over 2016 centred very much on the theme of negative interest rates. “What we have seen is institutions in Japan looking to reduce their weightings to Japanese government debt and increasing them to both equity exposures and overseas bonds.

“We launched funds that invest in high dividend low volatility stocks and also launched a couple of ETFs in US treasuries offering the higher yields of overseas bonds,” Post says. “The fourth ETF this year is not so much on the negative interest rates theme but more aligned to the Government looking to foster Japanese companies of the future.”

Post explains that the Japanese government has worked with a number of asset management houses to seed new ETFs focusing on investment in physical and human capital.

In response, Nikko Asset Management has launched the Japanese Economy Contributor Stocks ETF, based on an index co-designed with JPX and S&P.

“The government is committed to spend USD3 billion a year investing in these ETFs which have a bias towards companies in Japan that are making significant investments in capital research and development and also human capital,” Post explains. “It’s interesting in the Japanese context as they are trying to harness the best of the ‘job for life’ idea, but make employers realise that in an economy with almost no unemployment there is a war for talent. In the past, mid-career job change was unusual.”

Nikko Asset Management’s investor base is broadly diversified, with the majority represented by Japanese trust banks but there is also what Post calls ‘a meaningful proportion’ of private investors and ex-Japan foreign investors. n

NIKKO ASSET MANAGEMENT

Geoffrey Post, Head of International Product Development, Nikko Asset Management

Geoffrey Post collects the award from GFM’s Beverly Chandler

Robotics and automation is expanding exponentially across all aspects of how we work and live. As we live through this global trend, ETF Securities, together with ROBO Global®,

a recognised global leader in robotics and automation investment solutions, provide investors with a simple, liquid and cost effective way to gain access to this growing trend

through Europe’s first robotics & automation ETF.

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Invest in the future now

This communication has been issued and approved by ETF Securities (UK) Limited which is authorised and regulated by the United Kingdom Financial Conduct Authority.

This communication is only targeted at qualified or professional investors.

Investments may go up or down in value and you may lose some or all of the amount invested. Past performance is not necessarily a guide to future performance. The information contained in this communication is neither an offer for sale nor a solicitation of an offer to buy securities nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of such jurisdiction. This communication should not be used as the basis for any investment decision. You should consult an independent investment adviser prior to making any investment in order to determine its suitability to your circumstances.

The robotics and automation megatrend is happening...


ETF SECUR IT I ES

ETF SecuritiesBest Currency ETF Management Firm & Most Innovative European ETP Provider

Currency exchange traded products (ETPs) are at the cutting edge of the investment landscape. The currency market is the largest and most liquid in the world, and many investors look to currencies to diversify multi-asset portfolios, generate alpha and hedge currency risk. “While investors have traditionally used forwards, futures, options and CFDs to trade currencies, 2016 saw a number of new investors and an increasing level of activity in the Currency ETP space,” says Townsend Lansing, head of ETCs, ETF Securities.

“Currency ETPs offer investors the opportunity to directly trade currency pairs, such as the EUR/GBP and USD/GBP. Investors can also use them to trade a basket of currencies, such as gaining exposure to the USD against a trade weighted group of its currency counterparts. Elevated levels of volatility in currency markets linked to Brexit and other events have led investors to increasingly utilise currency ETPs, with our range seeing large inflows coming from institutional investors for the first time,” Lansing explains. “For example, one client used USD180 million of currency ETPs to go short the GBP against the Euro ahead of the Brexit vote while another used USD100 million to short USD against the Euro to hedge fixed income exposures.”

“Clients use our currency ETPs for a variety of reasons: they may not have the infrastructure or mandate to trade currencies directly or they may find ETPs more suited to use over a number of portfolios due to their tradability,” Lansing says.

Although the currency ETP client base is primarily dominated by retail intermediaries and private banks, looking forward, Lansing believes that institutional use of ETFs will increase but remain sporadic. “Structurally, our FX products are very good for a wide variety of investors, but large institutions that can access FX markets directly via futures, forwards and swaps may continue to prefer those options.”

Lansing predicts, however, that there will be more opportunities for institutional investors to use currency ETPs as a result of regulatory changes. The European Market Infrastructure Regulation (EMIR), which comes into effect in March 2017, will require investors to pay variation margins for over-the-counter FX swaps. The operational requirements behind such a change may make ETPs more attractive, since they don’t require any margin payments.

“In both 2015 and 2016, elevated levels of volatility in currency markets prompted a surge of interest in currencies, which in turn, resulted in inflows into products that provide currency exposure. Last year marked one of the fastest growing for the firm and so far 2017 is looking to be a growth year as well, with net inflows up USD400 million by mid-February,” says Lansing.

Interest in ETPs that include a currency hedge has been on the rise as well. “For example, in addition to investing directly in currency pairs, an investor who wants to buy oil but is worried about the accompanying USD risk can benefit from currency hedged oil ETP that helps to mitigate the inherent currency exposure. In the past two years alone, we have seen over USD500 million of inflows into our extensive range of currency-hedged commodity products,” explains Lansing.

“Overall, there is no doubt that currency volatility is on the rise. We believe that 2017 will continue to be an interesting time for this asset class as investors are deciding to hedge currency risk, either by buying currency-hedged ETPs or by investing directly in currency ETPs”. n

Townsend Lansing, Executive Director – Head of ETCs, ETF Securities (UK)

“There is no doubt that currency volatility is on the rise. We believe that 2017 will continue to be an interesting time.”


LYXOR ASSET MANAGEMENT

Lyxor Asset ManagementMost Innovative European ETF Provider

2016 was a strong year for Lyxor ETF, according to Adam Laird, Head of ETF Strategy, Northern Europe. The firm’s assets under management grew by more than EUR3 billion over the course of the year.

He explains that 2016 was a year of consolidation for the firm. “We’ve done a lot of analysing our product list and we’ve made changes we think will benefit our investors,” he says.

Fixed income is an important part of the firm’s strategy. They launched their first fixed income ETF in 2003 and now manage more than USD12.4 billion in bond ETFs, which makes Lyxor Europe’s second largest issuer for fixed income. “One of the most important is reviewing our bond range cutting our charges on our gilt and government bond funds which are now from 0.07 per cent and we have launched some new investments in a number of different areas.”

New products include Lyxor’s inflation expectations ETFs. “We know that for many investors inflation is a major risk and the complexity is that inflation often comes with interest rate hikes which will knock the value of bonds,” Laird says.

“Our inflation expectations ETFs are a way for investors to get exposure to rising inflation expectations but hedged against interest rate hikes.”

These products come in US dollars and a pan-European version. The US dollar version has raised over USD500 million in assets in less than a year.

Another area where Lyxor has seen expansion over 2016 was in the commodities sector. “We’ve had commodity ETFs for a number of years but we recently launched a product that excludes agriculture from it for two reasons,” Laird explains.

“Firstly, agriculture tends to be a volatile element in commodity investing and secondly we know many people don’t like investing in agriculture for ethical reasons as they see it as profiting from hunger and speculating on food prices.”

The new ETF covers the remainder of the commodities universe and it is essentially an Environmental, Social and Governance (ESG) ETF. “We have had other ESG equity investments but ESG is such a big theme at the moment, with so much demand, this is a way for investors to diversify their exposure,” Laird says.

Lyxor already has a strong audience in institutions and finds that demand is filtering down in Europe to wealth managers and IFAs.

“We knew that in Europe fund managers and institutions were some of the first users of ETFs,” Laird says.

“We have a strong presence amongst institutions, where we have a very loyal client base but now there is more and more growth from discretionary and wealth managers.”

Looking into 2017, Lyxor believes this could be a big year for ETF investors. “We are seeing a change in investors’ behaviour. The political and economic situation means investors need to be more selective with their bonds, and there is a good reason to be topping up core equity positions” says Laird.

“This is a natural time to use ETFs, to be targeted when investing in a low cost manner. For Lyxor, the year has started with a bang and we see no signs of it stopping.” n

Adam Laird, Head of ETF Strategy, Northern Europe at Lyxor Asset Management

Adam Laird collects the award from Beverly Chandler

Quality

Value

Momentum Dividend yield

SizeLow volatility

Think outside the style boxThe Power of factors

A smart beta pioneer, PowerShares by Invesco focuses on bringing factor-based investing to the ETF world.

Learn more powershares.com

powershares.com | @PowerShares US2117 02/17

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund’s return may not match the return of the Underlying Index. The Funds are subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Funds.Beta is a measure of risk representing how a security is expected to respond to general market movements. Smart beta represents an alternative and selection index-based methodology that seeks to outperform a benchmark or reduce portfolio risk, or both in active or passive vehicles. Smart beta strategies may underperform cap-weighted benchmarks and increase portfolio risk. There is no assurance that an

investment strategy will outperform or achieve its investment objectives.Dividend payments are not assured. Dividends are paid only when declared by an issuer’s board of directors and dividend amounts may vary over time.Factor investing is an investment strategy in which securities are chosen based on certain characteristics and attributes.There is no assurance a fund will provide low volatility.A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock market. Momentum style of investing is subject to the risk that the securities may be more volatile than the market as a whole or returns on securities that have previously exhibited price momentum are less than returns on other styles of investing.

Shares are not FDIC insured, may lose value and have no bank guarantee.PowerShares® is a registered trademark of Invesco PowerShares Capital Management LLC, investment adviser. Invesco PowerShares Capital Management LLC (PowerShares) and Invesco Distributors, Inc., ETF distributor, are indirect, wholly owned subsidiaries of Invesco Ltd. Before investing, investors should carefully read the prospectus/summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the Funds call 800 983 0903 or visit powershares.com for prospectus/summary prospectus.


POWERSHARES BY INVESCO

PowerShares by InvescoBest Smart Beta ETF Provider

where we have commodities, private equity, real estate and some hedge fund like strategies, including liquid alternatives. We have a multi asset class base in smart beta.”

The fastest growth has been in fixed income with the rate cycle in the US seeing rates continue to increase leading to the development of a variable rate fixed income range of ETF products.

“What’s really important is that for many new issuers into the space they are reliant on back tested information and performance. PowerShares differentiates by having built up historical track records. Some 70 per cent of our smart beta ETFs have at least a live track record of five years.

“Most larger institutional investors have an orientation around a benchmark, so we have built up scale with track record and liquidity. We now have those characteristics which mean we see more institutional take up of our smart beta products. We are also building on our smart beta range and offering single and multi-factor products, and we see more sophisticated institutions using those strategies,” Draper says.

Draper says that PowerShares’ view is that the smart beta segment will continue to grow at higher rates than the overall ETF industry. “It’s still in the early stages,” he says.

“Since the US presidential election, market conditions have changed with an expectation of future rising interest rates, and we are seeing returns dispersion increase as correlations come down among asset classes and the diversification benefits of smart beta are really showing.

“We are seeing the return of value and small cap equities in the US which bodes well for normalising market conditions. If the US leads, Europe and the rest of the world will probably follow so there are good tailwinds for which we are well placed as we continue to innovate in our new product pipe line.” n

Dan Draper, Global Head of PowerShares by Invesco, says that winning the smart beta award in the ETF Express awards is a particular pleasure for the firm as smart beta dominates PowerShares’ product line-up.

The firm now has over USD110 billion in ETFs with nearly USD47 billion in smart beta.

“Smart beta dominates our portfolios and represents our very culture,” Draper says. “We were founded over 13 years ago with smart beta products. The original founders of the company looked at the passive world and wanted to take the benefits of this emerging ETF wrapper as a delivery mechanism but use the investment content of active management.”

Back then the firm called it ‘intelligent indexing’. “Factor attribution is starting to grow, and it’s in our DNA,” Draper says. “This award means the most to us because it is where we were founded and where we have passion.”

At a firm level, 2016 was a record year for PowerShares both in terms of asset gathering but also Draper says at the smart beta level. “If you look at our competitors, we are well diversified with smart beta products in equities, fixed income and alternatives,

Dan Draper, Global Head of PowerShares by Invesco

Nicolas Samaran collects the award from GFM’s Beverly Chandler


OVERV I EW

23

The Greenwich report also found that institutions are using innovative ETF structures to address challenges in their portfolios. Institutions are turning to non-market-cap weighted/Smart Beta funds like Minimum-Volatility ETFs and Dividend/Equity Income ETFs to help navigate the challenges posed by low interest rates and increasing market volatility.

The report found the share of institutional ETF users investing in non-market-cap weighted/Smart Beta ETFs up to 37 per cent in 2016 from 31 per cent in 2015, with 44 per cent of these investors planning to increase their allocations to the funds in the next year.

The survey also revealed that when conducting due diligence on a potential

ETF investment, institutions considered four primary factors: the degree to which the ETF matches their exposure needs, liquidity/trading volume, the expense ratio of the fund and performance/tracking error.

Brown Brothers Harriman’s 2016 US ETF Investor Survey highlighted that the drive towards low cost investment has been a big contributor to the growth in ETFs. The US’s Department of Labor (DoL) Fiduciary rule, portions of which are due to be enacted in April of 2017, requires advisers who oversee retirement accounts to maintain a fiduciary standard for their clients. The conclusion is that this is likely to lead to increased usage of funds with the lowest fees, which could be a big positive for the ETF industry.

5


advanced risk management systems allow them to run substantial overnight positions, subject to their strict risk management protocols, allowing them to be a major player both on screen and in the wholesale market. The firm has set up the trading desk to allow specialists in each area to deal with screen trading, research and analysis, product expansion and wholesale trading.

The rapid growth of the ETF market in Europe over the last few years has seen Optiver commit substantial firm capital to tightening spreads on screens and supporting institutional size trades on a request for quote basis. Botman notes that “When we started in Holland the average investment capital of retailers or small institutional counterparties was half a per cent in ETFs and it was a matter of educating people. ETF providers have done a tremendous job in explaining what their products can do.”

Increased liquidity in the product has led to tighter trading spreads and Riley also comments on the competition between providers which has reduced management fees, “Low basis point management fees mean that ETFs are an efficient way to access new markets for a traditional equity fund… especially those who have launched multi-asset portfolios, an ETF also allows them to trade something that fits into their existing back office and risk management systems”, he believes that there may be further improvements to come for the investor in this area.

The universe of ETP product continues to expand and the rise of smart beta as a concept and a brand was one of the most notable developments of 2016. Their appeal to the retail investor is clear where they seek to control risk to the downside though Botman notes that this risk control normally comes at the cost of less participation in the upside. Socially responsible investing has also made some in roads and it remains to be seen what new products 2017 will bring,

Optiver is one of the world’s largest liquidity providers, operating across time zones employing over 1,000 staff spread across the globe. The four main trading hubs of Chicago, Sydney, Shanghai and the firm’s home town of Amsterdam are complemented by representation in London, Hong Kong and Taipei. The firm has been improving the markets since it was founded and it has evolved from its roots as a floor trading firm to become a technology driven power house. Maarten Botman, head of ETF Trading in Amsterdam, and Matthew Riley, London based UK Institutional Trading, explain that the firm has been trading ETFs since 2005.

The initial foray into ETF trading was to profit from an arbitrage strategy in the product on a proprietary basis but they soon realised that the move from price taker to price maker would better suit the culture and goals of the firm. Botman says “As a market maker, the whole focus of the company is to be a liquidity provider adding depth to the market and tightening prices for all market participants.”

Established in 1986, Optiver now has over 30 years of track record as a successful and competitive market maker. Unlike the new generation of HFT trading firms, Optiver’s

OPT IVER

OptiverBest European ETF Market-Maker

Maarten Botman, head of ETF Trading at Optiver

Matthew Riley, UK Institutional Trading at Optiver

Matthew Riley addresses the audience at the etfexpress Awards event


OPT IVER

firm deployed across the European delta one space means institutional sized ETF trades can be taken down easily. Optiver is committed to their mission to improve the market and welcomes competition as they actively look to build market share by offering the tightest spreads.

Looking beyond the delta one businesses, Optiver is also a cross product market maker for listed options in both the equity and interest rate markets. They use their proprietary cross market spread trading technology to optimise their hedge on any individual trade allowing them to make the best prices possible. This holistic approach means the firm is adaptable and nimble. As the market approaches a MiFID II environment the increased focus on transparency and best execution will benefit the institutional investor and those liquidity providers like Optiver who seek to deliver consistent, competitive and fair prices. n

be it from incumbent providers or from new entrants who maybe expected to come to the market this year.

An ETF product is fast becoming an ‘must have’ for the traditional fund managers and Botman and Riley both expect to see new players coming to the market despite the fact that among the existing providers there will no doubt be some consolidation among incumbents as they look to buy greater market share or dominate certain product areas. According to Botman, the rapid growth of ETFs is destined to continue “What we have seen in Holland is people moving from derivatives to ETFs as more and more money is drawn towards the sector.”

Riley also expects that the changing margin rules on OTC swaps will help boost ETF demand.

The expected growth in the ETF market will come in both in breadth and depth as issuers increase the range of assets covered and seek to customise exposure to particular asset price movements. Increasing complication in the reference basket will see challenges for market makers but Optiver is well placed in its market presence and as an AP with most issuers. They are already making markets in all of the equities in the Stoxx Europe 600 alongside 50 futures across the European exchanges and the significant balance sheet of the

Maarten Botman collects the award for Best European ETF Market-Maker from Beverly Chandler

“As a market maker, the whole focus of the company is to be a liquidity provider adding depth to the market and tightening prices for all market participants.”


EURONEXTBest European Exchange for Listing ETFs

Benjamin Fussien, Head of ETFs & Funds, Euronext writes that it’s been another good year for Euronext and its ETF offering.

2016 has been a volatile year for equities, with two very significant political events leading to high volatility spikes with record volumes on specific days.

Regardless, Euronext’s five ETF markets demonstrated once again, their reliability and high level of security for investors and trading participants. There was a record number of new listings, with 124 in 2016. Euronext welcomed UBS ETF as new key ETF issuer and onboarded new significant liquidity providers.

Fussien comments: “Independently of the political events, volumes were down on the back of a very low volatility environment across the year. Despite these low volumes, we achieved very strong outcomes, notably thanks to an even further increased client centricity, in line with Euronext’s overall strategy ‘Agility for Growth’, introduced last year.

“2016 was a good time for us to intensify client centricity and further grow in importance within the ETF landscape in Europe. We gained enough credibility and a central positioning to be at the forefront of the development of this buoyant industry, as experienced by the amazing industry collaboration and partnership to launch a pan-European block trading MTF. This ETF MTF project will provide both innovation on NAV trading and improved RFQ features, amongst others.

“We intend to launch the first true pan-European one-stop-shop platform in Europe to fight against opacity and market fragmentation, which both represent the two major issues for an even faster growth of the ETF business in Europe.

“Industry’s commitment was second to none with all of the key ETF issuers, LPs, banks, CCPs, software vendors and even some buy side actively contributing to make the ETF market better.

“There is still a lot of work to do though but we’re making material and very positive progress and prospects are very promising.

A strong mix of talented people has been instrumental to Euronext’s success. These improvements and record in number of listings came on the back of an expanded team with new hires, introducing Maryne Lefeuvre and Roland Prevot. Lefeuvre is charged with building the UK business while Prevot brings his experience in investment banking and operations to the ETF team. The team is also complemented with Sohila Bouamama.

“The team shows a very high level of dedication, as well as strong cooperation across the firm with marketing, market surveillance, corporate actions or government affairs, amongst others.”

Brieuc Louchard is responsible for the business development coverage in the Netherlands and France. “The Netherlands business is very important for us and has been very strong over 2016 with some of the biggest market makers based in the Netherlands, Optiver, Flow Traders and IMC,” Louchard explains.

Looking ahead, Fussien confirms that the pipeline for 2017 is even stronger in terms of issuers, with new significant players expected to join during the course of the year, on top of successfully welcoming Source ETF in early February of this year and trading participants and liquidity providers.

Fussien says: “We are very proud and grateful to all clients who voted for us. It is very rewarding to receive this level of client recognition, as shown by this ETF Express award, which we have won for the second year in a row.”

“We’re really grateful to all these fantastic people and institutions for such commitment, in line with our own very strong commitment to properly deliver this key project, both at Group and ETF team level,” Fussien concludes. n

EURONEXT

Benjamin Fussien, Head of ETFs & Funds, EURONEXT

iSTOXX® EUROPE SINGLE-MULTI FACTOR MARKET NEUTRAL INDICES

How can investors unlock a “pure” factor or multiple factors in one go? By implementing a strategy that utilizes a long position in the desired factor, while hedging with a short market position, thus isolating the “pure factor”. This allows them to derive further risk protection through the use of market-neutral strategies.

iSTOXX® Europe Single-Multi Factor Market Neutral Indices

STOXX developed a quantitative investment strategy built upon fully rules-based analysis and intelligence: They replicate a long position into iSTOXX® Europe Single or Multi-Factor equity indices while holding a short position into the STOXX® Europe 600 Futures Roll index. By doing so, the indices extract the factor premium of each strategy (carry, low risk, momentum, value, quality and size) while offsetting the market movements.

www.stoxx.com

INNOVATIVE. GLOBAL. INDICES.

FACTOR INVESTINGWITHOUT MARKET BIAS

STOXX is part of Deutsche Börse Group

STOXX, Deutsche Börse Group and their licensors, research partners or data providers do not make any warranties or representations, express or implied, with respect to the timeliness, sequence, accuracy,

completeness, currentness, merchantability, quality or fitness for any particular purpose of its index data and exclude any liability in connection therewith. STOXX, Deutsche Börse Group and their licensors, research partners or data providers are not providing investment advice through the publication of indices or in connection therewith. In particular, the inclusion of a company in an index, its weighting, or the exclusion of a company from an index, does not in any way reflect an opinion of STOXX, Deutsche Börse Group or their licensors, research partners or data providers on the merits of that company. Financial instruments based on the STOXX® indices, DAX® indices or on any other indices supported by STOXX are in no way sponsored, endorsed, sold or promoted by STOXX, Deutsche Börse Group or their licensors, research partners or data providers. Contacts: Europe, HQ Zurich: +41 43 430 7160 , The Americas, New York: +1 212 618 6363, Asia/Pacific, Tokyo: +81 3 4578 6688

iSTOXX Europe Low Risk (EUR GR)

iSTOXX Europe Carry (EUR GR)

iSTOXX Europe Size (EUR GR) iSTOXX Europe Multi-Factor (EUR GR)

iSTOXX Europe Value (EUR GR)

iSTOXX Europe Momentum (EUR GR)

STOXX Europe 600 (EUR GR)

iSTOXX Europe Quality (EUR GR)

Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Jul 12 Nov 12 Mar 13 Jul 13 Nov 13 Mar 14 Jul 14 Nov 14 Mar 15 Jul 15 Nov 15 Mar 16 Jul 16 Nov 16

200

180

160

140

120

100

80

Source: STOXX backtested data as from July 23, 2010 to December 30, 2016


STOXX LtdMost Innovative Index Provider

2016’s figures for the Deutsche Börse Group revealed that its indices business STOXX is one of the strongest growth engines for the company.

Matteo Andreetto, CEO, STOXX says that STOXX has grown globally year after year since he joined and is the leader in the structured products space with a market share of over 86 per cent.

The firm’s strength, he believes, comes from its background in derivatives and structured products which has driven the development of intelligent indices and factor or smart beta products.

Andreetto says: “Alternative weighting schemes have been around for a long time. Our background in creating investment solutions and a smart beta library of nearly 20 years help a lot when you think about bringing new products to the market.”

In terms of ETF assets, the end of 2016 saw USD95 billion in assets tracking STOXX and DAX indices. Over the year, the volatility spikes caused outflows but then there was a strong end of the year, mostly, Andreetto says, driven by asset allocation to European equities.

Three of the top ETFs in Europe and approximately 25 per cent of all assets under management are based on STOXX indices. “We are the number one provider in the derivatives segment for European exposure globally,” Andreetto says. “It’s a long-lasting legacy from the association of Europe with STOXX as a brand driven by innovation.”

The use of ESG, single and multi-factor in Europe, market neutral and not market neutral has enabled STOXX to diversify the market universe, Andreetto says.

“Across the board the institutional investors are a focused on the early adoption of innovation to address risk premia in their portfolio.”

Innovation in the STOXX indices has seen a new range of ETFs from iShares which are based on iSTOXX FactSet Thematic Indices that capture megatrends in investing such as

the ageing population, the rise of automation and robotics, digitalisation and breakthrough healthcare.

“We went for open architecture on two different levels,” Andreetto explains. “On the one side on data input, we partner up with the best data provider to create a differentiated product – it’s not just the price but its ESG scores, or carbon footprint.

“And we are a best in class provider and that distinguishes us from other index providers who use their own proprietary data. For instance, for our carbon footprint product, we used two different data sources which enabled us to combine actual and projected exposures based on industry trends.”

Some of the products are generated using STOXX’s own library and research team and they will also work with academics or institutional investors or ETF providers who also have their own research department. “They know that our indices are independent, objective, transparent, liquid and very tradeable.”

Politics played an increasing role in volatility and financial markets generally over 2016 and will continue to do so, Andreetto believes. “With a defensive and innovative approach you can create the right balance between risk and return,” he says. “It’s not only the right tool but the right suite of tools. I think the way for us to keep growing our business is to stick to what we are good at, generating rule based, qualitative, transparent and liquid investment strategies. None of our indices are committee based, everything is rule based which is why the clients who use our products know that, with STOXX, there are no surprises.”

Last year saw STOXX move into the fixed income arena with the new fixed income product range which started with the launch of the EURO STOXX 50 Corporate Bond Index, in April, which is the fixed income equivalent of the EURO STOXX 50, including the bonds of the blue-chip companies in the Eurozone. n

STOXX

Matteo Andreetto, CEO of STOXX Ltd

© 2017 Tradeweb Markets LLC. All Rights Reserved. This communicated has been issued and approved by Tradeweb Europe Limited, which is authorized and regulated in the UK by the Financial Conduct Authority, in Japan by the Financial Services Agency, in Hong Kong by the Securities and Futures Commission, and in Singapore by the Monetary Authority of Singapore.

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TradewebBest OTC Trading Platform for Institutional Investors

2016 was a momentous year for the Tradeweb European-listed ETF marketplace. Enrico Bruni, managing director and head of Europe and Asia business at the company says: “The platform had another record-breaking year, which may be an overused expression, but in this case it really does apply.”

Last year, Tradeweb saw notional volume in European ETFs surpass EUR134 billion, an increase of 19 per cent on 2015. More than EUR38 billion was executed in the fourth quarter alone, after a post-US election November surge in activity.

“We’ve consistently observed the strength of the ETF franchise itself and of our platform specifically in times of heightened market activity,” Bruni says. “The volatility that followed the US election was explosive, but the ability of the platform to absorb liquidity when demand was high remained exceptionally good.”

Quality and certainty of execution are two key characteristics of the Tradeweb ETF marketplace that set it apart from its competition. The features on offer mean that the increase in business has kept up, with January 2017 proving to be the busiest month since the firm launched its European ETF platform, with over EUR15.3 billion in traded activity. Tradeweb has also seen very good pick-up from European investors on their US platform, with about 10 to 15 per cent of the overall US turnover coming from Europe.

One of the drivers behind Tradeweb’s success in the ETF space is the rising popularity of the product itself. Assets under management in ETFs have continued to expand, as they are being increasingly used not just as a passive investment vehicle, but also as a pure trading product, Bruni says.

“Investors rely on ETFs to manage risk or take macro exposures. The resilience of the platform coupled with the expansion of our customer base provides an easy way to tap the liquidity available,” Bruni says.

For Tradeweb, a crucial part of their strength comes from the community of

market makers, who step up to the task of providing liquidity in ETFs electronically. There are currently 27 dealers for European ETFs on Tradeweb, ranging from larger banks to specialised independent firms, and that number is expected to reach 30 by the end of the year.

Bruni reports a dramatic shift in the types of investors using ETFs in Europe. “We experience a variation in the mix of customer types,” he says. “First of all, we have the traditional players, including asset managers and hedge funds. However, we’ve starting to receive enquiries from new types of investors, such as retail aggregators and the robo-adviser community, who are increasingly looking at ETFs as their main investment vehicles.”

“This community developing right now is a very important one for us. Efficiency is vital to their business model, and electronic trading enables them to automate their execution.”

Tradeweb has been focusing on full automation of execution with the creation of OMSX, a rules-based order execution functionality, which allows the buy-side to set bespoke parameters for trading smaller-value tickets. The tool dictates how orders are directed and executed, so that clients can concentrate on higher-value business.

Tradeweb is also building up its pre-trade information with a landing page for ETFs, where customers can obtain a complete view of platform activity to help them make better-informed investment decisions. In addition, last year the firm introduced pre-trade information embedded within the trade ticket, including dealer track records, hit rates by either volume or number of trades, as well as most recent trades and axes.

“MiFID II rules will highly impact ETFs, which are considered equity-like instruments and will be subject to stringent transparency requirements. We believe that our RFQ platform will provide an environment where the transition to a MiFID II regulated world will be facilitated, both by buy-side and sell-side customers,” Bruni says. n

Enrico Bruni, managing director and head of Europe and Asia business at Tradeweb

TRADEWEB


Other broader trends that encourage ETF growth exist on their own, BBH finds, with even old school active mutual funds launching smart beta ETFs. And smart beta remains ever popular with 97 per cent of investors surveyed by BBH planning to maintain or add to their smart beta positions next year.

Here, the findings supported growing interest in emerging index methodologies, with the firm reporting that investors are gaining comfort in using multiple smart beta strategies such as minimum volatility and dividend oriented strategies to achieve certain objectives and exposures in client portfolios.

And in Europe, ETF usage has grown on the back of a wave of new post global financial crisis regulation that seeks to give the investor the best possible and most affordable investment solution and to push as much trading as possible on exchange and away from the OTC markets.

The UK’s 2012 Retail Distribution Review (RDR) started the push towards the new

so-called robo-adviser type firms using ETFs on an RFQ basis, as a low cost investment solution for retail investors. Where the ETF industry had, in Europe at least, been dominated by institutions, suddenly the retail side is growing.

Robo-advisers or web-based digital investment managers create fairly vanilla portfolios of ETFs with fixed exposures to risk and reward designed to suit the investor.

Using ETFs rather than mutual funds or equities has proved cheaper with one such firm, Nutmeg, estimating that this process has saved GBP1 million in one year in trading costs.

And all of these developments in the industry rely upon and encourage greater education on ETFs. The wider range of people who take them up, the more the story is disseminated.

The ETF industry, which hits record levels of assets under management every month, looks set to continue on its path, sweeping away a great chunk of traditional fund management in its path. n

15

OVERV I EW

Documents

etfexpress Special Report etfexpress Awards 2017