Source, a leading European exchange-traded fund provider, has appointed Legal & General Investment Management (LGIM), one of Europe’s largest index fund providers, as the investment manager for a new physical ETF platform.
This new platform of physically-replicated ETFs hints at LGIM’s intention to play a more significant role in the growing ETF market.
The partnership sees LGIM making their most significant move to date into the ETF industry, highlighting the attractiveness of the space to traditional asset managers who are seeing increasingly larger portions of assets snapped up by ETFs, a function of the low-cost and efficient nature of their structure.
This is not the first example of these two firms collaborating on an ETF project. In 2012, the pair teamed up to launch the LGIM Commodity Composite Source ETF (LGCU).
The platform aims to expand Source’s capacity to launch a wider range of physically-replicated products, adding to its current range of 15 physical products, including fixed income ETFs, precious metal ETPs and a China A-shares equity ETF. It is designed to complement the existing range of Source ETPs, with the firm emphasising that it has no plans to convert its existing ETPs from its synthetic swap mode which investors appreciate for their reduced tracking error versus physically-replicated ETFs.
Lee Kranefuss, Chairman of Source, commented: “The new platform is all about increasing investor choice. We want to enable our investors to select the structure they prefer and are most comfortable with. Furthermore, having capabilities to launch more physical products will also allow us to target a wider investor base. Over 75% of investor flow since January 2014 has been into physical ETFs, so there is clearly strong demand for this type of replication method, and we intend to offer all of our investors the choice they deserve.”
The characteristics of the ETFs will be the same across all Source platforms, including intraday trading, increased liquidity and a full list of holdings published daily on the Source website. In fact, investors should not see much, if any, difference when buying or selling ETFs on the new platform compared to the existing platforms.
Kranefuss added: “We have a wide variety of investment ideas in the pipeline for 2016, some of which may be more suitable for physical replication and others for alternative methods. The increased flexibility provided by the new platform allows us to further provide what is appropriate for – and demanded by – our investors, and we will do this on a product-by-product basis.”