UBS pushes further into ETFs with London-listed range


LONDON, June 28 |
Thu Jun 28, 2012 9:37pm IST

LONDON, June 28 (Reuters) – UBS Global Asset Management
has pressed on with efforts to catch up with rivals in
the exchange-traded funds business, listing a record 64 of the
index-tracking vehicles on the London Stock Exchange in a single
day.

The move marks a concerted step in the Swiss group’s push to
muscle in on the ETF market having been slow to capitalise on a
$1.7 trillion industry that has been growing rapidly over the
decade and is dominated by BlackRock, Deutsche Bank
, State Street and Vanguard.

The new product line offers British investors access to 66
ETF share classes replicating 40 indexes in equity, fixed income
and alternative assets, two of which listed last week.

ETFs – funds tracking baskets of shares, bonds or
commodities that are traded like stocks – have become
increasingly popular among investors seeking cheap access to
indices without having to buy the underlying securities.

European exchange traded products (ETPs) recorded $3.1
billion of inflows in May to total $296 billion, estimates
Blackrock. UBS is ranked as the seventh-largest provider of ETPs
in Europe, with $13.3 billion of assets under management, or 4.5
percent market share.

The head of UBS’s global asset management arm told Reuters
the bank is now eyeing a similar push into new markets including
Australia and the United States.

“It is clear throughout the world the appetite for passive
(investing) is not diminishing – quite the contrary – and we
have seen that at an institutional level and also at the
wholesale level,” said John Fraser, who is also a member of the
bank’s group executive board.

The bank hired Clemens Reuter early last year from SIX Swiss
Exchange as its head of ETFs. Since joining he has overseen the
launch of 23 funds in 2011 and 18 in the first half of 2012 with
more in the pipeline, Reuter told Reuters.

“Clemens joining us was a key hire … and I asked him to
move quickly and I cannot fault him one little bit on that,”
Fraser said. “So while we are late coming to London, it is quite
rapid in the sense of Clemens joining us in Feb last year. So I
am delighted with the progress we have made with ETFs.”

UBS’s push into the sector, and passive management more
broadly, marks not just an effort to establish itself in a
growing industry, but also a move to diversify away from
historic dependence on wealth management, Fraser said.

If successful, diversification will leave it less vulnerable
to shocks such as that which saw customers pull assets from UBS
as the bank was battered by subprime losses after 2008 and a
prolonged dispute with the U.S tax authorities.

More recently the bank took a further reputational hit from
an alleged rogue trading scandal which has seen a former UBS
trader accused of unauthorised deals that cost the bank $2.3
billion.

The case forced UBS into a management shake-up culminating
in the departure of its chief executive, Oswald Gruebel. Several
top equities bankers have also left and the bank’s chief risk
officer has been replaced.

The bank now hopes its efforts in fund management and ETFs
will help it recuperate some of the assets and reputational
capital it lost in recent years.

But though they are rising in popularity, ETFs are
increasingly the subject of debate fueled by their performance
during major market events like the May 6, 2010 “flash crash”,
warnings by international watchdogs and also by the recent
proliferation of more complex products backed by derivatives.

There are two different ways in which ETFs track an
underlying index. Physical replication methods take in baskets
of the underlying assets tracked by the index, whereas so-called
synthetic ETFs replicate the returns of an index through the use
of derivatives.

In Europe about 40 percent of ETF assets are based on
synthetic products, asset manager BlackRock estimates.

Fraser said UBS’s vehicles will seek to make minimal use of
derivatives and avoid complexity where possible.

“It is totally legitimate for the regulatory authorities to
take a keen interest in ETFs. They would be remiss if they did
not. Equally, we have been very careful and taken that into
account. The bulk of our ETFs are fully replicated,” he said.