Will water be the next big thing in ETF thematics?
Fund Launches and Updates
BlackRock announced the delisting of 135 currency-hedged share class ETFs from the SIX Swiss and BX Swiss exchanges. They are also removing the euro-hedged trading lines of nine ETF share classes from the London Stock Exchange. Link
CoinShares launched a physically-backed bitcoin ETP in response to the growing institutional investor demand for cryptocurrencies. The CoinShares Physical Bitcoin ETP (BITC) is listed on the SIX Swiss Exchange with a TER of 0.98%. Link
Invesco launched a risk-rated multi-asset ESG range that will invest primarily in ETFs. The Invesco Summit Responsible Range will be managed the firm’s multi-asset fund managers Clive Emery and Richard Batty along with deputy fund manager David Aujla. Link
Legal & General Investment Management has expanded its core fixed income ESG ETF range with the launch of two strategies.
The L&G ESG USD Corporate Bond UCITS ETF (USDC) and the L&G ESG Emerging Markets Corporate Bond UCITS ETF (EMUS) are listed on the London Stock Exchange, Borsa Italiana and Deutsche Boerse with total expense ratios of 0.09% and 0.35%, respectively. Link
Norilsk Nickel has become the first mining company to enter the exchange-traded product space with the launch of a metal ETC range.
The four ETCs, which offer exposure to gold, silver, platinum and palladium, are listed on the Deutsche Boerse with total expense ratios ranging between 0.145% and 0.2%. Link
Flows
Assets under management in ESG ETFs jumped three-fold from just under $59bn at the end of 2019 to just over $174bn at the close of 2020, according to the Financial Times. Link
Last year, fixed income ETFs in Europe saw €36.9bn inflows, the second-largest on record behind the €53.4bn positive net flows in 2019. According to BlackRock, more than 60 institutional investors became first-time buyers of fixed income ETFs during and after the record discounts in March. Link
Thematic ETFs in Europe emerged as one of the big winners in 2020 attracting a record €9.5bn in net new assets.
These strong flows helped assets under management more than double from €8.2bn to an all-time high of €22.7bn. Last year saw a record 17 new thematic ETFs come to market, including the first medical cannabis ETFs from UK-based thematic specialists HanETF and new entrant Rize ETF. Link
Noteworthy
Managers of cryptocurrency investment products have hit back at the UK regulator’s warning to consumers against putting money into the high-risk investments.
The UK’s Financial Conduct Authority has banned the sale of cryptocurrency-related derivatives, including exchange traded notes, to retail investors. It also renewed last week its warning that anyone investing in crypto assets “should be prepared to lose all their money”.
However, industry figures say the ban and warning are short-sighted. Link
CSDR directive which comes into effect on 1 February 2022 While ETF issuers are widely supportive of moves to tighten settlement discipline, the report revealed a European ETF issuer consortium made a submission to the European Securities and Markets Authority highlighting a number of potential unintended consequences from the directive.
One area of particular concern, the report highlighted, was around settlement penalties for the primary market. Link
The end of an embargo on Qatar has come at a handy time for the Gulf’s biggest equity-focused exchange traded fund.
Inflows to the Doha-based Al Rayan Qatar ETF jumped when news of the potential normalization of relations with Saudi Arabia emerged late last year. Daily volumes surged earlier this month as the end of a three-year rift that also included the United Arab Emirates was finally confirmed. Link
Hong Kong’s de facto central bank has accused State Street Global Advisors of creating “market uncertainties” with the sudden reversal of its decision to stop investing in Chinese companies on the US sanctions list via Hong Kong’s largest exchange traded fund.
State Street announced last week that its Tracker Fund of Hong Kong would continue investing in blacklisted Chinese companies, just two days after it had announced it would not. Link
The majority of emerging market bonds remain off limits to passive investors – only 13% of the $29.tn stock of outstanding EM bonds are included in flagship indices tracked by ETFs. Link
The performance of the Invesco Solar ETF (TAN), which delivered a 231 per cent return in 2020, has had exchange traded funds providers casting around for the next big thing.
Cerulli believes the climate theme will continue, but instead of solar energy, investors’ attention will switch to water. It is perhaps unsurprising, therefore, that more than 90 per cent of European ETF providers polled in Cerulli’s most recent survey thought that water-themed investments would be in demand from investors in the next 12 to 24 months. Link
The head of Ark Investment Management has shaken up the $5.6 trillion ETF industry with her slate of actively managed funds.
Wood made bets on the bullish themes of 2020—Tesla Inc., tech stocks, biotech, and Bitcoin—and got the returns to match. In the past year alone, Wood’s Ark Innovation ETF took in almost $10 billion from investors, as it rose 149%.
“It does demonstrate clearly there is a market for actively managed ETF products,” says Ben Slavin, head of ETFs for BNY Mellon Asset Servicing. Link
Fund in Focus
Given all of the chatter last week about the water theme potentially being the next big thing, we took a look at the three water ETFs that are available in Europe.
The dazzling performance of the Invesco Solar ETF (TAN), which delivered a 231 per cent return in 2020, has had exchange traded funds providers casting around for the next big thing, according to the Financial Times.
Cerulli, which undertakes research and strategic consulting for clients such as private banks and wealth managers, believes the climate theme will continue, but instead of solar energy, investors’ attention will switch to water.
The World Health Organization has estimated that more than half the world’s population will be living in water-stressed areas by 2025.
It is perhaps unsurprising, therefore, that more than 90 per cent of European ETF providers polled in Cerulli’s most recent survey thought that water-themed investments would be in demand from investors in the next 12 to 24 months, making it the strategy that most respondents believed clients would ask for.
Only 65 per cent of those surveyed thought demand would rise for alternative energy investments such as solar. The research was based on responses from 37 of Europe’s largest ETF issuers and managers, with a total of €740bn in assets under management.
