ETF growth a testament to ETFs says LSE’s Lida Eslami

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Lida Eslami, Head of Business Development, ETP and IOB, London Stock Exchange, has spent 10 years working with ETPs at the London Stock Exchange, seeing growth year on year.

“Even in early 2020 with the Covid pandemic and unprecedented market volatility, ETFs proved their resilience which is a true testament to the products,” she says. She notes that Fixed Income ETFs helped with price discovery in underlying bonds in the portfolios, even when the underlying bond markets were difficult to trade, and that the exchange kept its market open throughout that period, providing orderly and fair prices for investors.

“What you hear from the industry is that ETF growth will continue,” she says, citing the figures that show European ETFs AUM is up 17 per cent year on year in dollar terms, with assets standing at USD1.5 trillion.

“When you look at how ETPs overall are growing, there are distinct indicators we are observing, including the number of new products, the assets under management and the trading turnover of these products,” Eslami says. “The number of new ETF issuers and new products have gone up this year with seven new issuers coming to the market and 251 new ETP listings on London Stock Exchange, during January to November, compared with 174 last year.”

“It is beyond what we were expecting in terms of new number of products,” she says, “but the market has been active and both existing and new issuers have continued to bring innovative products to the market.”

Eslami also points out the strength of the secondary market trading for ETPs. “We are a stock exchange and home for ETF listing and trading. We provide a resilient platform for ETF trading, supported by 20 registered market makers who provide executable prices on exchange and more than 80 member firms who are tapping into the liquidity available on our central limit order-book. We partner with our trading participant and market makers to innovate and introduced new functionalities such as RFQ 2.0 for ETPs, which shall help investors achieve better execution outcomes.”

“On the secondary market side, we have witnessed 100 per cent orderbook growth in the last six years. ETPs turnover in 2020 was up by 50 per cent year on year and this year we maintained that on the London Stock Exchange with an average daily turnover of GBP607 million. LSE’s ETP total orderbook turnover for 2021 was around GBP140 billion, accounting for 13 per cent of total LSE turnover; and the top 10 most traded instruments on the LSE frequently include ETPs. We believe that this trend of on-exchange ETP execution will continue to outpace trading growth elsewhere, as more and more brokers and end investors utilise new execution tools to obtain, and importantly to better understand and evidence, best execution.”

As the buy-side investors have detailed within this report, ESG is a dominating theme in ETFs in 2021. “It’s clear now that ESG is core and ETF issuers are seeking to address global climate concerns and related issues such as those covered by the UN’s Sustainable Development Goals, by issuing ESG products,” Eslami says.

On the London Stock Exchange this year, there have been 80 new ESG ETFs, bringing the total number of ESG ETFs to 244. And, more importantly, trading turnover in ESG ETFs has increased by almost 150 per cent year on year.

Eslami says: “Investors have become more familiar with these products and are looking to include them as part of a diversified portfolio so ESG will stay on this growth trajectory, both in terms of trading activity and assets under management.”

Other themes that have been represented by ETP launches over the year have included, a China ESG product, a China Treasury Bond product, as well as ETPs representing blockchain and cloud computing. “I think what is a testament to the ETF market is that they are proactive in terms of identifying gaps in the market and launching products to fill those gaps. This gives investors an opportunity to reach that market and meets investor demand in terms of looking at different asset classes, geographies, currencies and sectors,” Eslami says. “I am excited to see what other new products will come through the exchange.”

March 2021 saw the London Stock Exchange win best trading venue for ETPs with the ETF Express European ETF awards.

“The London DNA is global and we are attracting global ETP issuers to list on the London Stock Exchange and grow internationally beyond the UK,” Eslami says. “It’s a marketplace where international companies can raise assets and reach a diverse investor base.”

She cites big asset managers such as Northern Trust, whose FlexShares ETF brand entered European ETF market with a LSE listing earlier this year. “This trend will continue as will the utilisation and adaption of ETFs by both institutional and retail investors as they embrace the benefits that these products offer.”

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