Source – Best Emerging Markets Equity ETF Manager
London-based Source, one of Europe’s leading and most innovative independent ETF providers, offers investors a range of Emerging Market ETFs within fixed income and equities. The latter includes broad EM exposure via the Source MSCI Emerging Markets UCITS ETF (MXFS) as well as more targeted exposures to Russia and China. The Source RDX UCITS ETF tracks the performance of the Russian Depository Index, while the CSOP Source FTSE China A50 UCITS ETF was the first ETF in Europe to track China A-shares.
“MXFS saw inflows of EUR70m in 2014, whilst our China A50 ETF recorded inflows of EUR230m,” confirms Michael John Lytle, Chief Development Officer at Source.
Transparency is one of the key tenets at Source. It is one of the only providers to disclose swap fees on all of its products. MXFS is described as a physical ETF with a swap overlay, using multiple swap counterparties, and this helps generate smoother, more consistent performance. The swap fees are 0.40 per cent per year.
“The fund has been highly predictable in terms of its performance,” Lytle explains. “Its tracking is second to none, whereas other products in the market tend to be more erratic in terms of their tracking error versus the benchmark. We work with a selection of up to six different swap counterparties for equity exposure. This helps generate more predictable performance than using a single swap counterparty or a purely physically replicated product. Using this competitive multi-counterparty model means we can price competitively – all of our fees are disclosed publicly on our website and in fund documentation.”
Source partnered with CSOP to gain direct access to China’s A-shares market and decided on the FTSE China A50 Index, rather than the CSI 300 Index, which Lytle says is not only highly liquid but well exposed to areas of growth within the Chinese economy:
“The new RQFII quota scheme enabled us, with CSOP, to offer direct access to the China A-shares market to our investors. We launched the Dublin-domiciled China A-shares ETF last January. Investors are able to trade it with tight spreads because the FTSE China A50 Index is a well-functioning market index; it has a deep liquid futures market and this makes it a lot easier for Authorised Participants to create and redeem shares in Europe. You need that futures market because the Asian markets are closed when European investors trade.
“At the end of the year, we outperformed non-A shares China ETFs by around 50% and our closest competitors in this space by more than 13% per cent.
“We have the ability to offer our investors a well-priced suite of products because we have close relationships with a wide variety of APs, including our original founders Goldman Sachs, JP Morgan, Bank of America Merrill Lynch, Morgan Stanley and Nomura. In addition, we continue to partner with best-in-class asset managers with expertise in specific asset classes. We now have relationships with PIMCO and Ashmore, both of which we have worked with to develop a range of EM fixed income ETFs. On the equity side, we are working with the likes of Legal & General, CSOP and Man Group, and the list keeps growing,” notes Lytle.