CHICAGO Northern Trust Global Investments has jumped into the exchange-traded fund business with plans to launch 22 different ETFs.
Officials at Northern are trying to break into a market largely dominated by State Street Global Advisors and Barclays Global Investors by creating ETFs that target specific, often smaller countries, rather than launching funds that focus on a region or large country, according to competitors and consultants.
This set of products allows them to differentiate their ETFs from others already in the business, said Deborah Fuhr, London-based managing director who heads Morgan Stanley's investment strategies group. If you want to get into the ETF business, this is a good way to do it.
Northern Trust executives declined to comment on the funds, pending their official launch.
But a filing with the Securities and Exchange Commission shows the firm plans to launch 22 ETFs, under the brand name NETS. Nineteen of those funds track indexes tied to local exchanges in different countries. For instance, one ETF tracks the BEL 20 index in Belgium and another tracks the Hang Seng index in Hong Kong. Other Northern Trust ETFs will track indexes in countries such as Australia, Ireland, Israel, Russia, Germany, France and the United Kingdom, according to the SEC filing.
A complete list of the Northern Trust funds can be found on Pensions & Investments' website www.pionline.com/northern.
Other ETFs that track individual country indexes already exist, but generally those only track large indexes. Firms like Boston-based State Street usually give ETF investors access to smaller countries by creating indexes tied to a particular region, said James Ross, president of SSgA Funds Management Inc. SSgA is the second largest manager of ETFs with$158 billion.
From a client perspective (regional ETFs) give you broader diversification so you're not trying to make a decision about (investing in) Malaysia vs. Taiwan for instance, Mr. Ross said.
He pointed out that many countries have trading controls that limit how many securities an investor can buy, which could prove challenging to Northern Trust.
Despite those challenges, he said Northern Trust is the biggest entrant into the ETF business since Vanguard The Vanguard Group, Malvern, Pa., started creating ETFs in 2001.
They're not a startup. We've had a lot of new startups and smaller investment managers come into the business in the last five years, Mr. Ross said.
Gary Gastineau, a managing member of ETF Consultants LLC, Summit, N.J., said the fact that Northern Trust already has a large indexing business makes the move into ETFs easier for the Chicago-based firm.
If you want to invest in these countries, the (Northern Trust ETFs) will be a relatively pure way of doing it, Mr. Gastineau said.
But he questioned how much interest investors will have in some of those countries.
The level of interest in some of these countries isn't that great but it gives them (Northern) an opening in the ETF market and they'll probably do more things as time goes by, Mr. Gastineau said.
Morgan Stanley's Ms. Fuhr, whose group researches ETFs, pointed out that most of the indexes to which Northern Trust is linking its ETFs are tied to a local exchange, instead of a broader index such as the Morgan Stanley Capital International Europe Australasia Far East, for instance.
The local exchanges have futures contracts, which will make it easier for brokers to fairly price the Northern Trust ETFs and that could help bring in more business, Ms. Fuhr said.
Indexes tied to a local exchange are also usually more transparent, so investors will be able to get more information on the securities in the underlying index, she added.
(Updated on Feb. 22)