Following BlackRock’s recent proposals for reforming and enhancing the ETF market, iShares, the Exchange Traded Funds (ETF) platform of BlackRock, Inc. (NYSE: BLK), has launched a European-wide initiative that will support professional investors to evaluate and select Exchange Traded Products (ETPs).
The phenomenal ETP growth both in terms of assets and types of offering has led to demands for more transparency and higher service standards from investors and regulators alike. iShares’ Due Diligence campaign has been developed to respond to the challenges European investors face when analysing the diverse range of ETPs available to them. As part of the initiative, iShares proposes a new classification system with three distinct types of ETPs: ETFs, ETNs/ ETCs, and ETIs. In particular, iShares highlights the need for physically replicating and derivative replicating ETFs to be labelled clearly, and the term ETC to be reserved for physically backed commodity products.
The due diligence campaign establishes a consistent and robust framework by which professional investors can evaluate and understand structural risk in addition to market risk. At the heart of the framework are six key criteria to be investigated prior to investing in any ETPs: Structure, Tax, Performance, Trading and Valuation, Total Cost of Ownership and Securities Lending.
It all starts with asking the right questions. The framework provides a list of questions investors should ask in order to thoroughly compare and contrast the various structures established in iShares’ proposed new classifications. The four step decision process follows six chapters in the Due Diligence guide covering the above-mentioned key criteria in depth, and is illustrated with client case studies.
iShares will be holding client events across Europe to explain the Due Diligence framework and what it means to clients.
Commenting, David Gardner (pictured), Head of Sales for iShares EMEA, says: “As with any investment product, investors need to be sure the ETPs they buy are appropriate and give them exactly the exposure they want. Our Due Diligence framework, built around six key criteria, puts in place a methodical and robust process that is designed to help investors understand both structural and market risk, ultimately resulting in better investment outcomes.
“We recently proposed a series of regulatory reforms and recommendations for the industry, which included creating global standards for how exchange traded funds, notes and commodities are labelled and classified. Our Due Diligence campaign is a logical and complementary next step, focusing on how we can better support investors to make informed and appropriate investment decisions.”
Christopher Aldous, Chief Executive at Evercore Pan-Asset, says: “The increasing number of ETPs in UK and Europe brings investors many new opportunities. It also increases the challenge of finding the optimal investment vehicle. This formalised framework from iShares for analysing and evaluating different products from different providers is an excellent initiative and will help improve confidence in ETPs.”
