Providers responding to client demand with ETFs

Investment providers are launching a raft of non-traditional products in a bid to provide clients with immediate access to markets, while limiting their risk. The launches tie in with research conducted earlier this year by PWM, which showed a huge appetite for structured products among Europe’s largest distributors.

Société Générale Asset Management, which began to move into this area in 1998, with the creation of a specialist alternatives department, after its CEO Philippe Collas identified that the old SGAM European equity staples would not be selling like hot cakes after the turn of the millennium, is in the vanguard of the movement.

SGAM has launched the first structured funds to be quoted on the Euronext exchange in Paris. They are based on Exchange Traded Funds (ETFs), providing investors with actively managed exposure to the CAC40 index. Customers can choose partial capital protection or leverage, depending on their risk profile.

ETFs are still used primarily by fund of fund players to manage exposure to markets such as emerging economies, where it is difficult for a European player to build up an active fund management capacity. But this is likely to change, as retail products are increasingly developed. This is different to the US, where ETFs are seen as a key low-cost component of individual retirement savings plans.

But the rush to offer structured products is not embraced by all areas of the market. While major groups such as Credit Suisse Asset Management and UBS have embraced them due to client pressure, even some distributors are worried that they are being incorrectly sold to clients.

One head of investment with a major European bank which specialises in selling structured products told PWM: “Personally, I am not in favour of structured products when compared to actively managed mutual funds. Prospectuses for actively managed funds are required to show projections of the performance for the funds, but there is no such requirement for the underlying assets of structured products. Most retail investors simply don’t understand the nature and risk of what they are buying.”