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Interview with Michael John Lytle – Director of Marketing – Source …
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Good morning Mr. Lytle. Source has specific features that set it apart from other issuers. For example Source has a diversified group of shareholders. Can you tell our readers more about your company’s distinctive features and its products?
Source is a pan-European multi-counterparty provider of Exchange Traded Products. Although the European ETF market is crowded, there is room for significant development.
The 2008 crisis highlighted the need for better management of counterparty risk. Source offers ETFs that are structured to own liquid equities and hedge market exposure through a diversified group of swap providers (BofA Merrill Lynch, Credit Suisse, Goldman Sachs, JP Morgan, Morgan Stanley and Nomura).
In addition, trading liquidity in Europe lags far behind the US. With our 21 trading partners, single exchange listing and focus on optimised products, Source’s products are reaching unparalleled levels of trading activity. For example, the Source sector ETFs see secondary trading turnover equal to over 20% of outstanding AuM on a daily basis, far in excess of the 1-3% average for the rest of the European ETF market.
From Source’s perspective, innovation in the European ETF market needs to focus on making the market deliver on its promise of structural transparency, realised liquidity and limited counterparty risk.
Your current product offering includes 48ETFs and 28ETCs. When you first entered the market your focus was mainly on ETCs. Has your strategy changed since then or is the current product offering an evolution of your initial plan?
Source launched in April 2009 with 13 ETFs and 22 ETCs which offered a broad range of equity and commodity exposure. We have always been committed to providing a compelling variety of multi asset class exposure and we will continue to expand our offering to satisfy significant pools of investor demand.
Your decision to list your products on the English and German markets was taken to create a larger liquidity pool for your ETFs. On the other hand, this approach can limit listing on other markets. Do you intend to confirm this direction or will you re-think it in the future?
We strongly believe that single listings concentrate liquidity and enhance investors’ trading experience. The European ETF market is mainly an institutional market and institutions are broadly indifferent as to the European exchange on which they trade. Source would not characterise the LSE and Deutsche Borse as catering to the English and German markets. Their physical location is relatively irrelelvant to today’s institutional investor as long as they find deep, liquid markets with tight bid/offers.
You recently launched an ETF on the S&P500. Why list an ETF based on underlying indices that are already present in the products of other issuers? What differentiates your ETF from others?
There are over 15 providers of EuroSTOXX yet our EuroSTOXX 50 ETF has found broad investor demand even in a crowded marketplace. It has grown to almost €1BN, making it one of the largest EuroSTOXX 50 funds in Europe. This growth is a reflection of the quality of our product construction, value of limited counterparty risk and appreciation of the trading liquidity created by our partners. We believe that these qualities will make our S&P500 ETF the top choice for investors searching for optimal exposure.
You have passed the Euro500 million mark in ETC AUM . This is a very positive result. How will you maintain and increase this value in light of new players entering the ETC landscape?
We feel that we have a very strong product offering that includes carefully constructed products that have minimal counterparty risk, track compelling benchmarks and benefit from multiple market makers. Our S&P GSCI Crude Oil Enhanced T-ETC offers improved tracking of WTI versus competing front month oil products. Our physical gold P-ETC offers the most efficient exposure to physical gold in the market.
You currently have 76 ETF and ETC products on offer. What can you tell us about the future, when do you expect to provide new instruments and what sort of products will they be?
We will continue to launch new products that have significant potential investor demand. Emerging markets, volatility and fixed income are all areas where we see latent, untapped investor demand.