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Retail demand for ETFs is growing

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Townsend Lansing (pictured), head of ETCs, ETF Securities reports that the range of investors using exchange traded commodities (ETCs) is broadening to include retail investors. "Interestingly enough in the early days we probably saw predominantly institutional investors using them the most," he says.

"Since 2012, we have seen more and more retail usage, which we measure via trade size. We assume that primary market trades less than USD1 million are direct retail or retail intermediaries. Trades of that size have seen a significant increase, which we take as a representation of increasing interest from this demographic."

Lansing believes that much of this is tactical, with people taking direct currency views via pair trades. "Within the retail space, we see most investors trading tactically, although some people are investing in some of our basket products for diversification purposes. Investors are looking at currencies as an alternative asset class and a diversifier, and with currency volatility so much more in the news, people are looking more and more to invest in currencies."

The trend is being driven by volatility, Lansing believes. "For most people, currencies are in the background and something you only thought about when you travelled abroad but with people shying away from traditional fixed income and equity and with the big moves in currencies, such as the Euro/USD or Swiss Franc/Euro, investors realise they can use ETPs as an access tool to the currency markets."

 Lansing predicts that currencies will continue to establish themselves as a fully-fledged asset class in people's minds in small amounts: "In the way that commodities established themselves five to eight years ago," he says. "The retail investor couldn't get into it before, so we would expect to see growth in Italy, the UK and Germany."

In terms of FX ETCs, ETF Securities lay claim to being the primary European provider with 90 per cent of the market, offering the major pairs USD/Euro/Sterling baskets for diversified exposure and a short and leveraged range. "It's an extensive range, providing access to the G10 currency pairs against the USD, EUR and GBP with a variety of leverage factors," Lansing says. And looking forward, the firm is planning to introduce some emerging market ETCs in the next six months. They already offer the Chinese renminbi and Indian rupee but they are planning to expand and offer more, with a Turkish lira product in the pipeline.

"Support for our range of FX ETCs has gone way past just the usual promotional activities. We have invested significantly in education via a range of animated educational videos, to decode currency investing, as well as providing weekly research and investment ideas." 

"What we are looking for are investors who don't otherwise have the ability to trade currencies at a wholesale level," Lansing says. 

"Our FX ETCs offer good value to investors. You need to invest time in education and research to build your knowledge base on FX but in particular when you compare them with the cost of setting up the infrastructure of having someone trade currencies for you, this is a much simpler method," Lansing concludes.

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