Italy sees growth in appetite for exchange-traded funds

The virtues of simplicity, transparency and low cost are attracting Italian investors to ETFs, a sector that is benefiting from a trend towards fee-based transactions among financial advisers, wealth managers and private banks.

ETF trading in Europe has hit new highs as investors, weary from sustained global market volatility, seek investment havens.

Data from Lyxor says on-exchange trading in Europe-listed exchange-traded funds and ­products (ETPs) rose to €32bn from €18.2bn in mid-August, an increase of 75% in one week, while trading in gold and other commodities doubled.

Investors looking for liquidity have pushed trading volumes of the leading ETF provider in Europe, iShares, to almost three times their daily average over the past six months.

Amid the turmoil caused by the sovereign debt crisis, the Italian ETF market continues to grow.

ETFs are offered via two different channels: a listing on Borsa Italiana and, for institutional investors, OTC trading, according to Mauro Giangrande, head of db X-trackers, Italy.

“The institutional investors, mainly pension funds and portfolio managers, make significant use of ETFs, as investment emphasis has shifted from return vs risk to benefit vs cost.

OTC trading is often preferred by this kind of client, as it is a direct and efficient way to execute larger orders at low cost,” he says.

Institutional investors represent about 80% of ETF demand in Italy. Lyxor’s OTC trades are executed through Société Générale and its open architecture platform comprising more than 40 independent market makers.

The remaining 20% of the market consists of private bankers, retail investors and fee-only financial consultants, who appreciate their simplicity, transparency and low cost.

Valerie Baudson, managing director of Amundi ETF, says: “We support clients’ needs with our high-quality research and on a one-on-one ad hoc basis.

“The main investors are funds of funds and ‘gestioni patrimoniali’ [managed accounts] followed by pension funds and insurance companies that use ETFs in unit-linked products.

We have also seen interest from retail investors, who are sensitive to our market positioning as a low cost, quality product provider.” Retail’s aggregate market share is about 20%, but it is on the rise.

The Borsa Italiana is a distribution channel through which the full spectrum of investors can access ETFs, including sole traders, but they have distinct trading preferences.

Institutional traders focus on the traditional ETFs. Their preferred stocks tend to be in the S&P500 or ­EuroStoxx50 indices, mostly physically backed trades.

Retail traders instead prefer to focus on specific funds, sometimes leveraged or as part of a shorting strategy – for example, the FTSE MIB double short trade, generating high volumes of trading but with smaller positions.



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