Many Hedge Funds historically have used futures to gain exposure to indices, but this may be set to change, according to research by exchange traded fund (ETF) provider Source.
The overall costs of ETFs have been trending lower, making them more competitive compared to futures based on the same underlying indices, especially when considering the additional costs of ‘rolling’ futures at each expiry period. Three of the six indices that Source regularly monitors had more expensive futures rolls in the December 2015 expiry period compared to the relevant Source ETFs. This was in spite of asset managers reducing their net long futures positions during the volatile market conditions. As market volatility returns to normal, futures costs may also be expected to return to their previous (higher) levels, which is likely to favour ETFs.
In anticipation of Hedge Funds using ETFs on a more frequent basis, Source has appointed Pasquale Capasso as Director in the firm’s Capital Markets team, where he will focus on the particular trading requirements of this key investor group. The four-person team is responsible for assisting investors in various aspects of trading Source ETFs, including pre-trade analysis and a comparison of the different trading methods available.
Prior to joining Source, Pasquale was at MSCI Analytics for three years, working in sales and business development of portfolio risk and performance analytics to banks and Hedge Funds. He also worked in sales and marketing at Deutsche Bank in Italy, focusing on ETFs and structured products. He has a Master of Science degree in Finance from Bocconi University in Italy.
Juergen Blumberg, Executive Director, Head of Capital Markets at Source, says: “We are seeing more than EUR100 million a day traded by Hedge Funds primarily in our range of sector ETFs. This is part of the general inflow we are seeing from investors who have traditionally used futures, swaps and other derivatives to gain exposure to their target markets. Often, they are simply wanting to gain the most efficient exposure. We are really pleased that Pasquale decided to join Source, as he will spend his time understanding Hedge Funds’ specific needs and finding appropriate solutions.”
