Transcript monthly flow report Without Single Funds

For Professional Investors Only
Global and European ETPs:
Overview, Flows, and Due Diligence
Stephen Cohen
Head of iShares EMEA Investment Strategy and Insights
April 2013
Outline
 ETP Market Snapshot
 ETP Usage
 ETP flow recap
 Due Diligence
 iShares
iShares EMEA Investment Strategy and Insights (ISI)
For professional clients / qualified investors only
ETP Market Snapshot
Global and European ETP landscape
Global AUM % market share
Global ETP and ETF AUM and Count by year
$2,500
$2,000
as at end of February 2013
3500
3000
2500
2000
1500
1000
500
0
Other ETP Assets Total
ETF Assets Total
# ETFs
$1,500
$1,000
$500
$0
17%
58%
14%
Developed Equity
Fixed Income
Others
Emerging Equity
Commodities
as at end of February 2013
1400
Other ETP Assets
ETF Assets Total
#ETFs (Right)
2%
Europe AUM % market share
European ETP and ETF AUM and Count by year
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
9%
1%
18%
1200
1000
800
600
52%
19%
400
200
0
10%
Developed Equity
Commodities
Emerging Equity
Others
Fixed Income
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
iShares EMEA Investment Strategy and Insights (ISI)
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Global and European ETP competitive landscape
Global snapshot
European snapshot
 Top 10 providers account for 83% of ETP
market share
 Top 10 providers account for 91.3% of ETP
market share
 4,798 ETPs are managed by 182 providers, with
$2.037tr of assets under management
 2135 ETPs are managed by 40 providers, with
$375.4bn of assets under management
 iShares is the market leader with 620 ETPs
counting for $796 bn of assets under
management
 iShares is the market leader with 206 ETPs
counting for $145.7bn of assets under
management
 Globally there are 3,314 ETFs with $1.85tr of
assets under management
 In Europe there are 1,319 ETFs with $337.7bn
of assets under management
Provider *
Feb-2013
Assets
% Market
Share
Feb-2013
Net Flows
# ETPs
Feb-2013
Assets
% Market
Share
Feb-2013
Net Flows
iShares
145.7
38.8
1.5
206
DB x-trackers
51.5
13.7
0.2
261
Lyxor/Soc Gen
42.2
11.2
(0.2)
205
ETF Securities
23.5
6.2
(0.4)
304
Credit Suisse
17.4
4.6
(0.2)
58
ZKB
15.1
4.0
(0.3)
9
Provider *
# ETPs
iShares
795.7
39.1
4.1
620
State Street
342.1
16.8
(4.3)
176
Vanguard
270.8
13.3
5.0
88
PowerShares
76.8
3.8
(0.8)
193
DB x-trackers
52.6
2.6
0.2
310
Lyxor / Soc Gen
42.5
2.1
(0.2)
210
ETF Securities
28.3
1.4
(0.3)
329
Van Eck Global
26.5
1.3
0.8
55
UBS
14.9
4.0
(0.1)
267
Nomura Group
25.3
1.2
0.2
43
Source Markets
13.3
3.5
0.04
93
WisdomTree
Investments
Amundi
12.4
3.3
(0.1)
102
23.1
1.1
2.2
47
Commerzbank
6.6
1.8
0.04
264
172 others
353.4
17.3
3.7
2,727
30 others
32.8
8.7
0.8
366
2,037.0
100.0
10.6
4,798
Total
375.4
100.0
1.4
2,135
Total
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
*Providers measured at parent company level
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ETP Usage
Why are ETPs so popular?
Transparency
 Investors know the ETF holdings, price, and costs
Liquidity
 ETFs offer two sources of liquidity:
 Primary market and secondary market
Diversification
 ETFs provide immediate exposure to a basket or group of securities for instant diversification
 Broad range of asset classes including equities, bonds, commodities, investment themes, etc
Flexibility
 ETFs are listed on exchanges and can be traded at any time the market is open
 Pricing is continuous throughout the day
Cost
effectiveness
 ETFs offer a cost-effective route to diversified market exposure
 The average Total Expense Ratio (TER) for ETFs tend to be less than that for the average index tracking
fund active fund
Source: BlackRock, as at end of 2012.
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European ETF clients are primarily institutional, retail adoption slower
Main ETF
Users






Institutional
Wealth Managers
Intermediary
Discretionary AMs
 Private Banks
 Independent Wealth
 Platforms (eg fund
Investment Bank AMs
Broker Dealers
Insurance
Managers
 (Multi) Family Offices
supermarkets and wraps)
Direct Retail
 ‘Sophisticated’ individual
investors
 IFA networks
 Individual IFA firms
Hedge Funds
Pensions (in-house
managed assets)
 Pensions (externally
managed assets) – via
consultants
Main ETF
Uses







Cash equitisation

Transitions & rebalancing 
Core/satellite

Portfolio completion

Tactical adjustments
Duration management &
liability matching
 Credit strategies
Cash equitisation
 Stand alone products or
part of a risk-rated/asset
allocation solutions
Rebalancing
Strategic allocations
Tactical allocations
Thematic exposure




Core building blocks
 Core portfolio building
blocks
 Portfolio construction (ie
improve diversification)
Strategic allocations
Tactical allocations
Short-term exposure to
markets & asset classes
Source: BlackRock, as at end of 2012.
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ETF applications in institutional portfolios
 A recent Greenwich Associates survey indicates that 40% of the pensions, foundations and endowments polled plan to increase
their use of ETFs over the next year*
 Institutions which were once using ETFs solely for transitions or rebalancing are now using them for increasingly strategic
purposes with longer holding periods
 Liquidity overlay strategies have surged in popularity
among institutional funds, where the % of institutions
implementing these strategies has increased from 3%
in 2010 to 31% in 2012.*
 Further demonstrating the shift from tactical to strategic
is holding period, where 51% of institutions averaged
ETF holding periods of one year or longer, up from
36% in 2011.*
Source: 2012 Greenwich Associates - U.S. ETF Research. Reference indication for US only. Base: 62 pensions, foundations and endowments. Interviews conducted between
February and April 2012
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ETF usage example: core satellite strategy
ETFs lend themselves to use in both core
and satellite portfolios.
Core:
 Broad diversification by closely mirroring asset class
benchmarks
 Consistent performance relative to a benchmark
 Low costs
 Improved risk management
Satellite:
 Precise exposure to a wide range of discrete market sectors,
specific styles or market capitalisations indices.
 Exposure to selected market segments at low costs
 Eliminating security selection or manager selection risk
Source: BlackRock, as at 2012.
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Flow Recap
YTD flows
Europe ETP Cumulative Net Flows/ $Bn
Global ETP Cumulative Net Flows/ $Bn
300
60
250
2012
50
2010
200
2010
40
150
2011
30
100
50
20
2013
2012
2011
2013
10
0
-50
0
Start J
F
M
A
M
J
J
A
S
O
N
D
Start J
F
M
A
M
J
J
A
S
O
N
D
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
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Global ETPs versus mutual fund flows
Developed Markets Equity ($ bn)
ETP Flows
Mutual Fund Flows
Fixed Income ($ bn)
Emerging Markets Equity ($ bn)
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
iShares EMEA Investment Strategy and Insights (ISI)
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Monthly flow comparison – Global
ETP flow 13-month rolling net flows and snapshot across exposures ($bn)
 February flows of $10.6 bn ensured the strongest 2-month start  FI flows reflected the duration rotation theme with investors
for equities
 DM equity gathered $13 bn indicating continued strong
moving towards the short end of the yield curve. February
inflows into short maturity FI ETPs totalled $4.0 bn
momentum, while EM equity flows slowed compared to the prior  Gold is losing its luster with ETP outflows totalling at $5.6 bn in
month and HY fixed income witnessed outflows
February
 Dividend income equity continued gathering momentum at $1.6
bn of inflows in February
20.0
15.0
10.0
5.0
0.0
Feb-2013 Flows
-5.0
Jan-2013 Flows
-10.0
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
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Monthly flow comparison – Europe
ETP flow 13-month rolling net flows and snapshot across exposures ($bn)
 The momentum of strong ETP inflows continued in February
at a similar level to January
 There are slightly less ETP flows into equities compared to
January with a small uptick in FI inflows
 Noticeably, EM inflows were the weakest in the equity space,
particularly when looking at y-o-y change
Feb-13
2.0
Jan-13
1.5
Dec-12
1.0
$ bn
Nov-12
Oct-12
Sep-12
0.5
0.0
Aug-12
-0.5
Jul-12
-1.0
Jun-12
Feb-2013 Flows
Jan-2013 Flows
-1.5
May-12
Apr-12
Mar-12
Feb-12
-$10
Equity
$0
$10
Fixed Income
$20
$30
Commodity / Other
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
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Flow breakdown – Global and Europe
In February 2013 (commodity outflow: $5.1bn)
G
L
O
B
A
L
YTD 2013 (commodity outflow: $5.3bn)
17.24%
26.37%
Equities
Equities
Fixed Income
Fixed Income
73.63%
82.76%
In February 2013 (commodity outflow: $1.2bn)
E
U
R
O
P
E
YTD 2013 (commodity outflow: $0.8bn)
11.61%
Equities
39.95%
Fixed Income
Equities
60.05%
Fixed Income
88.39%
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
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Equity overview – February
Global (Mn $)
7,000
Europe (Mn $)
1,000
500
3,000
0
-500
-1,000
-1,000
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
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Europe focus - February
Global (Mn $)
600
500
400
300
Europe (Mn $)
600
500
400
200
300
100
200
0
100
-100
-200
0
-300
-100
-400
-200
Europe Regional
Germany
France
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
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EM country focus
EM Country Flows (Mn $)
Brazil
Jan 13
Feb 13
Dec 12
Nov 12
Oct 12
Sep 12
Jul 12
Aug 12
Jun 12
Apr 12
500
May 12
Jan 13
Feb 13
Dec 12
1000
8000
500
7500
7000
0
6500
-500
Mexico ETP
Flows
MSCI Mexico
(RH)
-1000
6000
5500
Feb 13
5000
Jan 13
-1500
Nov 12
Dec 12
Oct 12
Nov 12
550
Sep 12
Oct 12
Jan 12
Feb 13
Jan 13
Dec 12
Nov 12
Oct 12
-800
Sep 12
600
Aug 12
-300
Jul 12
-600
Jun 12
650
Apr 12
-400
-200
May 12
700
Jan 12
600
Aug 12
-200
-100
Feb 13
0
Jan 13
750
200
Aug 12
800
0
400
Nov 12
Dec 12
600
Sep 12
Oct 12
900
850
100
Feb 12
Mar 12
650
Mexico
600
590
580
570
560
550
540
530
S Korea ETP Flows520
MSCI Korea (RH) 510
500
Jun 12
Jul 12
200
800
Apr 12
May 12
MSCI Russia (RH)
950
Feb 12
Mar 12
300
700
Jun 12
Jul 12
1000 1000
Russia ETP Flows
750
MSCI India (RH)
South Korea
400
800
India ETP Flows
Jan 12
Feb 12
Mar 12
Apr 12
May 12
Russia
Sep 12
1450
300
250
200
150
100
50
0
-50
-100
-150
-200
Jan 12
1950
Jan 12
Feb 13
Jan 13
Dec 12
Oct 12
Nov 12
Sep 12
Jul 12
Aug 12
Jun 12
Apr 12
40
May 12
-4000
Jan 12
45
Feb 12
Mar 12
-2000
Jul 12
50
0
2450
Aug 12
55
2000
3450
2950
Jun 12
60
4000
Apr 12
6000
65
3950
Brazil ETP
Flows
MSCI Brazil
(RH)
May 12
8000
1400
1200
1000
800
600
400
200
0
-200
-400
-600
-800
Mar 12
70
China ETP
Flows
MSCI
China (RH)
Feb 12
10000
India
Feb 12
Mar 12
China
Source: Bloomberg, BlackRock ETP Landscape. Data as at end of February 2013.
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FI - February
Global (Bn $)
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
-1
Europe (Bn $)
0.5
0.4
0.3
0.2
0.1
0
-0.1
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
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Commodities and others - February
Global (Bn $)
Europe (Bn $)
1
0.4
0
0
-1
-2
-0.4
-0.8
-3
-4
-1.2
-5
-1.6
-6
-2
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of February 2013.
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Due Diligence
Due Diligence Overview
 BlackRock recently published a global ViewPoint, proposing a series of regulatory reforms and market standards to
improve the market place for ETPs. ETP Due Diligence campaign is the next step, offering a framework for ETP due
diligence to help investors’ investment process
 Investors need to understand structural risk in various ETPs not just market risk
 BlackRock proposes a new classification system with three distinct types of ETPs: ETFs, ETNs/ETCs, and ETIs
• For ETFs, physically replicating and derivative replicating ETFs need to be labelled clearly
• ETCs should be reserved for products backed by physical commodities with the rest of the commodity-linked
products falling under ETNs
• ETIs is a catch-all for ETPs that are not funds or notes (e.g. warrants)
 In our view, best practice means:
• Transparency
• Independence between sponsor and swap counterparty
• Multi counterparties
• Over collateralisation
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Classification
A new approach to classifying ETPs
 Different types of ETPs imply different levels of complexity and carry different structural risks. It is important for investors,
especially the retail investor, to be aware of these risks.
 iShares proposes a new classification of ETPs that further breaks them out into ETFs, ETNs/ ETCs and ETIs.
Exchange Traded Products (ETPs)
Exchange Traded Funds (ETFs)
• Physically replicating ETFs:
– Fully replicating
– Optimised/partially replicating
• Derivative replicating ETFs
• UCITS-compliant
Exchanged Traded Notes
(ETNs)/Exchanged Traded
Commodities (ETCs)
• Not UCITS-compliant
• Non-fund debt structures
• Effectively unregulated
• Possible counterparty risk
Exchange Traded
Instruments (ETIs)
• Neither notes
nor funds
• Non UCITS-compliant
• Possible counterparty risk
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Structure (continued)
Risk and complexity
ETP structural complexity and risk
 Investors use ETPs to gain exposure to markets and
accept they are taking market risk. They should also be
aware of the additional risks associated with
ETP structures.
Risk
ETI
 Structural risk depends on the counterparty risk and the
Synthetic ETN
level of regulation associated with the structure.
 Physically replicating ETFs are generally low in
complexity and risk, while synthetic ETNs and ETIs, being
more opaque, are high in complexity and may carry high
risk.
Derivative
replicating ETF
Physical
replicating ETF
Physical ETC
Complexity
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Key areas of consideration for ETF selection
• Understand the ETP structure and
structural risk
1. Structure
2.Tax
Tax
• Tax considerations and implications
3. Performance
• Evaluating ETF portfolio
manager performance
4. Trading and valuation
• Assess the flexibility to trade when you need to
5. Total Cost of Ownership
• How to analyse the true cost of owning
an ETF
6. Securities lending
• Benefits and risks of securities lending in
an ETF
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It all starts with asking the right questions…
iShares EMEA Investment Strategy and Insights (ISI)
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Introducing iShares Due Diligence Framework
Four Steps to ETP Selection
1. Evaluate the ETP provider
2. Quick rule in rule out criteria
3. Evaluate the product structure
Physically
replicating ETF
Derivative
replicating ETF
ETCs or ETNs
4. Select the product
General
Performance:
tracking error and
tracking difference
Trading and valuation
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Total Cost
of Ownership
28
iShares
Global ETP landscape is concentrated around three providers
Global Providers AuM ($B)1
 The Stats
AuM ($B)
Market
Share
759.5
39.3%
336.6
17.4%
245.2
12.7%
73.5
3.8%
51.2
2.6%
42.5
2.2%
28.9
1.5%
27.7
1.4%
21.1
1.1%
19.3
1.0%
327.5
16.9%
• $1,933B AuM
• Over 4,700 funds
AuM, $B
Source: BlackRock Investment Institute – ETF Research, Bloomberg. Data as at end of 2012.
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European ETP landscape is concentrated around three providers as well
European Providers AuM ($B)1
AuM ($B)
Market
Share
140.0
38.1%
50.2
13.7%
42.3
11.5%
24.1
6.6%
17.6
4.8%
16.0
4.4%
14.2
3.9%
13.3
3.6%
11.6
3.2%
6.8
1.9%
30.9
8.4%
AuM, $B
Source: BlackRock Investment Institute – ETF Research, Bloomberg. Data as at end of 2012.
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iShares has a strong global footprint in the $1.9 trillion ETP market
iShares offices
Total
North America
• AuM: $1,933B
• AuM: $1,405B
• 4,746 ETFs
• 1,714 ETFs
• 182 providers
• 58 providers
iShares
iShares
•
43% market share
•
$600B, 368 ETPs
•
39% market share
•
$760B, 621 ETPs
Asia Pacific
• AuM: $127B
EMEA
Latin America
• AuM: $12B
• 35 ETFs
• AuM: $389B
• 53 providers (39 Europe)
iShares
•
85% market share
•
$10B, 20 ETPs
• 94 providers
• 2,455 ETFs
• 4 providers
iShares
• 542 ETFs
•
38% market share
•
$140B, 206 ETPs
iShares
•
8% market share
•
$10B, 27 ETPs
Source: BlackRock Investment Institute – ETF Research, Bloomberg. Data as at end of 2012.
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Disclaimer
Regulatory Information
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