ETF: success continues
Investors are now very familiar with ETFs, the acronym for exchange traded funds. Seventeen years have passed since the first European exchanges, including SIX Swiss Exchange, launched the corresponding trading segments. Since that time, ETFs have become quite a success, and the Swiss stock exchange's ETF segment is adding another chapter to this success story this year.
The ETF segment of the Swiss stock exchange has continued to grow. In 2016, turnover reached a record level of CHF 103.8 billion, exceeding the previous record of CHF 101.9 billion from 2011 – and in 2017, a new high will be set, as the current record has already been broken on 23 November. As at 30 November, the ETF segment had recorded turnover amounting to CHF 106.5 billion, an increase of over 14% on the same period in the previous year. This represents a significant contribution to the growth of the stock exchange's overall turnover, which is 6.3% higher year on year as at the end of November. The number of ETF transactions has also grown significantly. In the first eleven months of the year, 936,562 transactions were carried out in the ETF segment, which is over 7% more than in 2016.
SIX Swiss Exchange is in an excellent position in the current year compared to its European counterparts, as turnover volumes have fallen at other trading venues during the same period. If this trend continues, the Swiss stock exchange might further expand its share of European ETF trading volume, which most recently amounted to around 12% according to an independent market analysis.
This growth is naturally closely connected with the attractive product portfolio that the Swiss stock exchange offers to institutional and private investors. According to data from ETFGI, more than 50 fund management companies have launched a total of 1,560 ETFs for trading on 24 European exchanges – more than 1,200 of which are available on SIX Swiss Exchange (incl. multiple counting of ETFs that are traded in several currencies under the same ISIN). This selection has been expanded with 114 new products in the current year alone.
At the start of the year First Trust entered the Swiss market, increasing the number of ETF providers to 23. In August, Amsterdam-based IMC Trading B.V. became the latest firm to enrich the exchange's selection of market makers, increasing the total to a current 18. As further well-known international issuers are already in the starting blocks to launch their products on the Swiss stock exchange in the first quarter of 2018, additional growth is likely, too.
The diversity of the product offering is naturally an important reason why investors trade in the ETF segment of the Swiss stock exchange. However, the trading conditions are also an important success factor. An attractive spread, i.e. the smallest possible margin between bid and asked prices, reduces the overall costs that investors have to pay for their investment.
The diversity of the product offering, however, is also the outcome of measures taken by SIX Swiss Exchange to steadily increase the appeal and competitiveness of the trading venue for issuers and market makers. These measures include the modification of its trading model, which was implemented at the beginning of the year. Under the new model, the exchange made two changes to the market maker book in which ETFs are traded: capacity was raised significantly and capacity fees were lowered. This made it possible to increase the quality of execution and the available liquidity, while in parallel narrowing the trading spreads.
Barometer of success
Since last year, when it acquired the distribution and marketing activities as well as the operating business for the Swiss indices of STOXX AG, the Swiss stock exchange has forged ahead with the expansion of its index business. The exchange has confirmed its expertise and innovativeness by launching numerous updates and offering investors a wide variety of new investment opportunities.
One milestone in 2017 was the capping of the SMI, the exchange's benchmark index. This measure opened the door to Europe for the index because it now meets the diversification requirements set out in the UCITS Directive. The index can therefore also be used in the EU as a benchmark for the Swiss equities market. This means the Swiss stock exchange has fulfilled a need of its customers, which it had identified using a market consultation. Specifically, the weighting of the largest shares in the SMI is now capped at 18%, which boosts diversification. In addition, investors will probably benefit from greater liquidity if the products on the index are available to a wider pool of investors.
All existing ETFs based on the SMI will use the capped methodology without requiring investors to take any action. However, for those who prefer the old index with its overweighting of certain heavyweights, the Swiss stock exchange also has a solution, the newly launched SPI 20.
The rules and regulations of the SXI Real Estate indices were likewise amended, and the family was expanded to include the SXI Real Estate All Shares Index. This increases granularity for investors in the real estate segment. Besides these official indices, the exchange has new custom indices as well, which we calculate on behalf of customers.
It is only logical, therefore, that ETFs which are based on Swiss indices are also enjoying sustained demand. At the moment there are 45 – and counting.
In light of this unabated momentum, ETFs will probably continue to grow in 2018. They still have significant potential to expand among banks and investors. Their ease of use, transparent product composition and low costs make them an extremely attractive choice for investors. Assets under management are expected to increase by over 15%; if this trend continues, the CHF 1,000 billion barrier will soon be breached.
(KASTEN MARKTREPORT)
Tracking the market
In order to provide investors, market participants and the interested public with a comprehensive insight into the trading, trends and changes in the Swiss ETF market.
SIX Swiss Exchange has extensively revised and expanded its ETF Quarterly Statistics report. The new ETF market report provides even more information about the development of the ETF segment, and thus makes a valuable contribution towards increasing transparency and promoting knowledge