ETF Securities is using its established infrastructure to build out its smart beta product offering as investors increasingly turn to lower cost alternatives to active strategies. Having grown into one of Europe's leading ETF providers over recent years, ETF Securities has started to see momentum build in its ‘Canvas' initiative, borne out of the firm's desire to bring more solutions across different asset classes.
The Canvas initiative relies on ETF Securities' infrastructure to help external managers develop their own ETF offering or product ranges, as well as to launch ETFs off strategies that already exist within UCITS mutual funds. The Canvas platform manages UCITS funds, and currently has EUR800million in AUM.
"Canvas allows us to partner with firms that have expertise or intellectual property in a specific area. For us, the strategy has to be robust and the investment proposition must resonate with the investor community," says Howie Li (pictured), Co-Head of Canvas.
ETF Securities does not purely work with asset managers on Canvas. It has, for example, recently developed two technology-focused smart beta ETFs: one is a cybersecurity ETF called ETFS ISE Cyber Security GO UCITS ETF, the other is Europe's first Robotics and Automation ETF, ROBO Global® Robotics and Automation GO UCITS ETF.
"Our experience and expertise is not in analysing robotics companies, so we partnered with ROBO Global to launch the ETF. For the cybersecurity ETF, we partnered with International Securities Exchange, LLC, who developed a cybersecurity index," says Li.
Rather than follow a market capitalisation-weighted approach, this first slew of disruptive technology ETFs uses a modified equal weighting methodology in order to give sufficient investment weighting to early growth companies.
"That's how we are approaching disruptive technology equities in Europe as part of our smart beta development. Both these ETFs would be considered growth investments," confirms Li.
The big push on Canvas this year, however, has been in the fixed income space. Back in April, ETF Securities teamed up with Lombard Odier Investment Managers (`LOIM') to launch a range of fundamental fixed income products.
The main thrust here is to look at the inefficiencies of market cap-weighted fixed income indices i.e. lending more money to the most indebted companies.
"Our approach is to prioritise the quality of debtors based on their ability to pay and that is the essence of the fundamental approach. There are four fundamental products listed, available in USD, EUR and GBP – Global government bonds, Global corporate bonds, European corporate bonds and Emerging Market local government bonds. I emphasise ‘local' as, together with LOIM, we believe in the importance of local currency in driving potential returns in emerging market bonds," says Li.
This is Canvas's strength: the ability to identify new ideas and reach out to the right partner to give investors highly original investment options, all within the transparency and cost-efficiency of an ETF wrapper.
"Lombard Odier fitted the bill because they've been managing the fundamental strategy for more than five years, with over USD5billion in this strategy, and they have an experienced fixed income team headed up by Kevin Corrigan who runs the portfolio management," adds Li. "The vision has always been to have the underlying infrastructure in place to define strategies that investors want to access. We are giving people the opportunity to work together with us on Canvas to offer different types of ETFs, including systematic, rules-based smart beta funds."
