Boosting The ETP Market
December 13, 2012
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[This interview originally appeared on our sister site, IndexUniverse.eu.]
Exchange traded provider Boost ETP was launched in October this year by ex-ETF Securities founders, Hector McNeil and Nik Bienkowski. Their aim was to build a bespoke exchange-traded product provider and the plans came to fruition when the firm launched its first two products on the London Stock Exchange earlier this month.
Boost’s choice of tracker products was met by some raised eyebrows, though. The firm says it will focus on 3x leveraged long and 3x leveraged short ETPs. These are products that cannot be created as UCITS funds (as Europe’s UCITS rules limit leverage to 200% of a fund’s net asset value), and leveraged ETPs have also been the focus of numerous warnings from regulators.
However, the two products have gained $10million in assets in their first week and Boost today launched eight more leveraged ETPs on the London Stock Exchange. The new ETPs all offer 3x leveraged exposure, long or short, to daily movements in the the DAX, the EuroStoxx50, Nasdaq 100 and the Russell 1000 share market indices.
The global leveraged ETP market has assets under management of $45 billion, of which 5 percent, or $9 billion are in Europe, according to data from Bloomberg and Boost ETP.
Rebecca Hampson talked this week to Boost’s co-CEO Hector McNeil about this latest venture.
IU.eu: Why have you launched these products?
McNeil: Leveraged and inverse products have been around for ten years and in that time have amassed assets under management of $45 billion. Of this, Europe has about the same portion of assets as it has in the global ETF market.
One of the problems we saw is that banks have been the main providers of these products and the leveraged products are often a small category, sold alongside other products. This is where they have been lost and probably not enough information has been given about them. We are trying to change that by being a specialist provider with a focus on this particular segment.
IU.eu: What is the aim of Boost ETP?
McNeil: We believe that the European ETF market is heading the same way as the US market, which is made up of several large providers acting as ETF supermarkets, with a range of standard products, and then a larger amount of bespoke providers offering niche products. We aren’t trying to pull the wool over anyone’s eyes; we are a niche provider of a certain type of product in the ETP market. We want to be the leader in this market in Europe with a focus on investor education.
Europe is a much more advanced market in terms of sophisticated investment. For example, Europe has structured products, certificates, CFDs (which can be 20x leveraged), turbos, and spread betting. The US does not have this. They have a market of listed products and the bad press I have seen has come out of the US.
IU.eu: The Financial Services Authority warned in 2009 that these types of products are difficult to understand and potentially unsuitable for long term investors. How do you rationalise this?
McNeil: We agree with the warning and this is because these products sit alongside other products in banks’ ETP offerings and there is not enough information about them before they are sold. They get hidden or lost, but we think we can educate people on this.
These products are better in specialist advisors’ hands as this avoids confusion.
IU.eu: How do you ensure retail investors do not buy these?
McNeil: These products should not be used in asset allocation portfolios. They are targeted at sophisticated investors who have a trading mentality. We have several layers of information before you can even get to the pages on these products on our site.
Investors can’t access these products without going through a member firm. The only way someone can trade these on the LSE is through a member (broker) and in their terms of business they need to outline which products are suitable.