Skip to main content
MENU
Subscribe
  • Login
  • My Account
  • Logout
  • Register For Free
  • Subscribe
  • Topics
    • Alternatives
    • Artificial Intelligence
    • CIOs
    • Consultants
    • Defined Contribution
    • ESG
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Private Credit
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • Special Reports
    • Washington
    • White Papers
  • International
    • U.K.
    • Canada
    • Europe
    • Asia
    • Australia - New Zealand
    • Middle East
    • Latin America
    • Africa
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Influential Women in Institutional Investing 2024
    • Eddy Awards
  • Resource Guides
    • Active Thematic Global Equities
    • Retirement Income
    • Fixed Income
    • Pension Risk Transfer
    • Pooled Employer Plans (PEPs)
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • ESG Rated ETFs
    • Divestment Database
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • DC Plan Design: Improving Participant Outcomes
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
  • Print
Breadcrumb
  1. Home
  2. INVESTING & PORTFOLIO STRATEGIES
August 19, 2013 01:00 AM

ETPs attractive as overlay for equity portfolios, liquidity

Ari I. Weinberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Institutional investors might have perked up when the Arizona State Retirement System announced this spring that it would be providing hundreds of millions in seed capital to a spate of new exchange-traded funds. While Arizona's announcement was notable, such wholesale funding of exchange-traded products has become increasingly common for large investors and money managers interested in an overlay for their equity portfolio, additional liquidity in bonds and even fixed leverage on a portfolio.

    In April, iShares, a unit of New York-based BlackRock Inc., announced the $28.4 billion Arizona State Retirement System, Phoenix, would seed four factor-based ETFs, utilizing MSCI indexes to isolate momentum, size, value and quality stocks factors. Each portfolio launched with more than $100 million, largely funded by an ASRS legacy index portfolio that BlackRock had been managing.

    The move offered two signals to the market: that asset owners can work through ETP sponsors and authorized participants for wholesale funding into an ETF; and that a large pension fund was willing to take a flier on seeding a fund with no proven liquidity, showing faith in the creation/redemption process for institutional-size orders.

    Of course, the manner in which institutional investors enter a large trade into an ETP depends greatly on how they would prefer to transact. The institutional investor can be long (or short) in an instant by working with a liquidity provider to get a market price. Alternately, they can work directly with an authorized participant, delivering some amount of securities and cash, for a guarantee of net asset value at the close, said David Abner, head of capital markets for WisdomTree Investments, Inc., New York.

    When WisdomTree launched its Emerging Markets Local Debt Fund in August 2010, more than $100 million traded on the first day due to a large creation at NAV by an institutional buyer that preferred to participate in the market as opposed to seeding the fund, Mr. Abner said.

    “The largest ETF providers now have entire capital markets desks focused on facilitating this process for institutions,” he said.

    This has been most telling in the increasing use of bond ETFs by large institutions. For example, the notional creation size for iShares' seven flagship bond ETFs has increased to $60 million to $80 million in the past two years from $40 million to $50 million in the prior four years, according to data analyzed by iShares for Pensions & Investments.

    Investors looking to the primary market for ETFs, however, need to consider settlement times and related fees for wholesale creations and redemptions.

    “Both the institutional custodian and the ETF sponsor custodian will need to be cognizant that the securities and any cash buffer required for the institution to create shares in an ETF will be exchanged for corresponding value in ETF shares,” said Brian Reilly, vice president for ETF sales at Brown Brothers Harriman & Co. in Boston.

    Mr. Reilly added that the institution requesting the creation (or contributing securities in kind) needs to be aware of any cash component and whether the authorized participant creating the shares plans to pass on any related fees and transaction costs related to the ETF share creation.

    Working with banks

    Some large investors, particularly those looking to quickly allocate a specific strategy across multiple accounts at once, have chosen to work with a bank to launch an exchange-traded note. Unlike a traditional structured note or even a total-return swap, ETNs can be created by a bank in conjunction with an asset manager or institutional investor to deliver precise returns in a liquid vehicle. Of course, the counterparty risk of the note issuer remains.

    Fisher Investments, which manages $46.5 billion, has worked with UBS AG and Barclays Bank PLC in the last two years on three ETNs with embedded leverage in the note, including the $1.2 billion Barclays ETN+ FI Enhanced Global High Yield ETN and the $900 million Fisher Enhanced Big Cap Growth ETN from UBS Global Asset Management.

    “The exchange-traded nature of ETNs allows us to efficiently accommodate inflows and outflows, and they are overall more flexible in this regard than a standard note or swap,” said David Eckerly, group vice president for Fisher in Woodside, Calif. “Unlike most existing "off-the-shelf' ETFs, the leverage factor is not reset daily,” he added.

    Ian Merrill, head of Americas ETNs at Barclays in New York, said the firm has seen more reverse inquiries for such ETN+ products recently because of changes in the over-the-counter derivatives market. (Barclays primarily markets ETNs through the iPath brand.)

    To allay some of the concern that large institutions have over ETN liquidity, the notes used by Fisher are redeemable in their entirety every valuation day (any trading day) and cash is delivered on the third business day following valuation.

    Related Articles
    Fees, indexes take center stage in ETF competition
    ETFs open doors to other institutional accounts
    Exchanges creating programs to attract ETP investors and market makers
    Institutional investors now own 64% of largest ETFs, Moody's says
    WisdomTree buys majority stake in Boost ETP to tap European market
    Recommended for You
    Headshot of Mark Buckley
    Coalition Greenwich: Alternatives to continue gaining on public equity
    Sponsored
    White Papers
    The State of Lifetime Income Report
    The Next Wave of LDI Evolution
    Retirement security to future income wins, TIAA brings you the latest financial…
    U.S. Public Funds Top Performers: Q2 2024
    Generative AI Investing: Opportunities at a Key Tech Inflection Point
    Research for Institutional Money Management: Advancing Physical Risk Modelling,…
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    October 23, 2023 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Custom Content
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2025. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Artificial Intelligence
      • CIOs
      • Consultants
      • Defined Contribution
      • ESG
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Private Credit
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • Special Reports
      • Washington
      • White Papers
    • International
      • U.K.
      • Canada
      • Europe
      • Asia
      • Australia - New Zealand
      • Middle East
      • Latin America
      • Africa
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Influential Women in Institutional Investing 2024
      • Eddy Awards
    • Resource Guides
      • Active Thematic Global Equities
      • Retirement Income
      • Fixed Income
      • Pension Risk Transfer
      • Pooled Employer Plans (PEPs)
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • ESG Rated ETFs
      • Divestment Database
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • DC Plan Design: Improving Participant Outcomes
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
    • Print