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Interview with Pietro Poletto – Head of ETF & Fixed Income Markets – London Stock Exchange Group …
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Good morning Mr. Poletto, The LSE is the most important stock exchange in Europe and one of the largest in the world. Does this dominance also extend to the ETF and ETC markets, or is the situation different in those markets? What can you tell us about the importance of the ETF and ETC markets?
ETFs and other ETPs are an important part of our product offering, and London Stock Exchange Group is the largest ETF exchange by volume in Europe. These products have proven popular structures with investors as they are liquid, secure and transparent securities that give investors exposure to a broad range of assets and regions.
Earlier this year, the London Stock Exchange celebrated ten years since the first Exchange Traded Fund (ETF) was admitted to its markets. A decade after iShares launched its product tracking the FTSE 100 index, there are now over 560 ETFs and other ETPs available for trading on the Exchange, from 13 separate issuers, with trading activity in these products growing strongly year after year.
Over the years, the range of products available has diversified enormously to include ETFs which track indices based on companies in emerging economies, cleantech and carbon neutral firms and businesses which are Shariah compliant. There are also a large number of instruments providing leveraged or short exposure to a variety of indices.
Some ETFs quoted on LSE are listed in USD and GBP. Can you explain why these products are listed in two different currencies?
That’s right, the Exchange offers a multicurrency trading service for ETFs, and a number of funds are available for trading in Sterling, Dollars or Euros. It’s simply about giving investors the choice of which currency to trade in.
ETFs have responded well during turbulent times in the markets. From your perspective can you confirm the increase in the ETF market and in AUM or have you instead noticed a pause in growth?
ETFs and ETCs are one of the few asset classes that have managed to escape the effects of the financial crisis. While most areas of the market have seen marked declines, ETFs and ETCs have continued to grow. New products and new issuers continue to come to market, and we have had record years in terms of value traded, number of trades and volume traded.
The LSE has always been a market for institutional investors and the same can be said of the ETF and ETC markets. In contrast, ETFs and ETCs are actively traded on other European stock exchanges and in particular in Italy by retail investors. Can you explain this difference and tell us if you think the situation will change in future?
I think it’s certainly fair to say that, in general, the Italian market is more retail focussed than the London market. But with ETFs showing particular resilience during the volatility and uncertainty of the last two years, ETFs have become an increasingly prominent and attractive asset class to UK retail investors too.
ETCs are an important area of ETPs (Exchange Traded Products). New issuers have entered the market and more will probably arrive in the future. Do you expect ETCs to be as successful as ETFs, or do you see some fundamental differences between the two products?
Our ETC market continues to evolve at an encouraging pace, as both the breadth of products, and the level of trading activity, maintain trends of strong growth. For example, in March UBS issued 69 ETCs on the London Stock Exchange in its first major issuance of commodities in Europe outside Switzerland.
Earlier this year, we also welcomed a significant tranche of new ETNs to market, further expanding the Exchange;s extensive range of Exchange Traded Products [ETPs]. A total of 28 new products from two separate issuers were admitted to the Exchange in one day, with Société Générale admitting 16 ETNs and Barclays iPath another 12. Like ETFs and ETCs, ETNs offer investors simple, real-time exposure to commodities and futures indices.
Trading activity across the range of ETP products we offer has seen consistent growth – In the first quarter of 2010, there was £10.4 billion worth of trading in the products on the London Stock Exchange, a 13.4 per cent increase on the same period last year.
Do you expect the arrival of new issuers or do you think the current issuers will simply increase their ETF and ETC offering?
We expect to continue to see exciting growth and diversification in the European ETF marketplace. The Exchange has been at the forefront of the growth of the European market for these products and we will continue to further develop our ETF and ETC segments to maintain our lead in Europe, working with existing and potential issuers to meet the constantly evolving needs of the market.