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Competitive Spirit Amongst ETF Providers

ETF providers are fighting for ultimate supremacy in the market by cutting prices and launching new ETFs

Lee Davidson 4 January, 2013 | 12:49AM

The ongoing battle between exchange-traded fund (ETF) providers escalated further last month with more announcements of price cuts, ETF launches, ETF closures, and new wrinkles in the replication method debate.

iShares vs. Ossiam

A new front in the fee war was opened in December as iShares launched a new range of funds on the London Stock Exchange that track MSCI minimum volatility indices. These ETFs sport significantly lower fees than their nearest competitors, which largely consist of funds in Ossiam’s minimum variance lineup. The differences in the fee levels of the new iShares funds and their most closely comparable Ossiam rivals are non-trivial. For instance, iShares S&P 500 Minimum Volatility (SPMV) has a total expense ratio (TER) of 0.20% versus the Ossiam ETF US Minimum Variance (LUMV) which has a TER of 0.65%. Similarly, iShares MSCI Emerging Market Minimum Volatility (EMMV) has a TER of 0.40% versus the 0.75% levied on Ossiam ETF Emerging Markets Minimum Variance (DEMV). Clearly, when it comes to fees, ETF providers are becoming increasingly cognisant of the role fees play in investors’ decision-making process.

Boost ETP Arrives on the Scene

Boost ETP, a new exchange-traded product (ETP) provider, launched its first two ETPs on the London Stock Exchange in December. Boost ETP was formed in October by former ETF Securities employees Hector McNeil and Nik Bienkowski.

Despite growing competition in the ETP market, Boost's founders say they saw an opportunity for independent ETP providers to gain market share. In a conversation with Index Universe earlier this year, Hector McNeil, co-CEO of Boost, stated: "Over the next year or two we expect to see banks start pulling out of the market and a US ETF market model being adopted. That is, several big issuers and many independents. This is where we see our role."

Boost have launched two leveraged ETPs that are designed to deliver 3x long and 3x inverse the daily performance of the FTSE 100. Boost has stated that the TER for these products will be 0.75% and 0.80% for the long and inverse leveraged products, respectively. As always, it is vital to understand that because the leverage ratio on these leveraged and inverse products is reset on a daily basis, their performance will likely diverge from their stated leverage ratio (3X, -3X) over holding periods lasting longer than a single trading day. This divergence will be especially pronounced during periods of market volatility.

BBVA Closing Down ETFs

As competition continues to heat up in Europe, some ETF providers are struggling to stay afloat. In December, BBVA announced it would close all but two of its ETFs, citing a lack of asset growth.  BBVA’s two remaining ETFs, which trade on the Bolsa de Madrid, track the EURO STOXX 50 and Ibex 35 indices. Despite the lack of investor demand for their products in Spain, BBVA has enjoyed success in the Mexican ETF market where it has a 15% market share.

db X-trackers Launches New Offerings

In November, the largest synthetic ETF providers in Europe, db X-trackers and Lyxor, announced they are venturing into the physical ETF space in light of waning fund flows. In December, db X-trackers began their foray into the physical ETF space by launching physical replication ETFs tracking the FTSE 100, EURO STOXX 50, and EURO STOXX 50 ex-Financials indices on the London Stock Exchange. In addition, db X-trackers has stated it will continue to offer synthetic (or what the firm itself has chosen to call “indirect”) replication ETFs on the FTSE 100 and EURO STOXX 50 indices on the LSE in order to give investors the option to track these indices using either physical or synthetic replication within the db X-trackers suite. According to db X-trackers, it will launch additional physical replication ETFs tracking the DAX, Nikkei 225, and S&P 500 indices in the near future.

For more information on the evolving ETF landscape, read "ETF Wars (and Rumours of Wars)" and "Lyxor and db X-trackers Shake Things Up".

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About Author Lee Davidson

Lee Davidson  is an ETF analyst with Morningstar Europe.