Amundi blasts ETF market with new UK range

Amundi is bidding to blast its way to into the world’s top Exchange Traded Fund providers with the launch of a range of 16 ETFs, seven of them unprecedented, on the London Stock Exchange.

The move is part of a concerted effort to raise its profile in the sector, with 50 new funds overall set for launch in the UK. It will continue with both cross-listings and multiple registrations across Europe.

Valérie Baudson, managing director of Amundi ETF, said she would not shy away from a “price war” among ETF providers. “We are waiting for it. There is more and more competition, and de-concentration, in this market. The three largest providers are losing market share.”

She added that Amundi had leveraged its size and technical expertise via synthetic replication to drive down the costs of providing ETFs, sacrificing margin in an already low-margin business in order to grow its business. “ETFs are low margin and high volume. We have taken the decision to position fees lower than competitors in order to get market share.”

She estimates Amundi ETF total expense ratios are some 25 basis points lower than those of most rivals, but says the company wants to stay true to the core value of ETFs: transparency, simplicity and liquidity. “That is the ethos of the product and the industry, and we welcome that. We aim to bring lower cost but higher quality product, which is for the final benefit of the investor.”

Amundi ETF began an ambitious European roll out plan in early 2010. Since then it has extended its presence from France into Germany, Switzerland, Italy, the Netherlands, and now the UK market. With this new step, the total number of its listings to well over 300.

Products are backed by two of Europe’s largest banks, Crédit Agricole S.A. and Société Générale, which respectively own 75% and 25% of Amundi. With €689.5bn in assets under management, the Amundi Group claims its place as the third largest asset manager in Continental Europe.

Baudson said that in contrast to the US, institutional investors in Europe want simplicity and liquidity, so the firm is constantly creating new ETFs in response to client requests. “But innovation does not mean complexity,” she added, citing the example of the Amundi ETF MSCI Nordic. “We ask two questions before we do anything: 1) is the index clear enough, lisible enough? And 2) what is the liquidity of the underlying index? There is 100% correlation and we don’t want to disappoint the client.”

The quality of the product is derived from the underlying structures. There is only one swap and one counterparty per ETF. The mark-to-market of the swap is the only counterparty risk and is therefore limited to a maximum 10% of the net asset value of each ETF. The average mark-to-market value of swaps was 4.5% in 2010.

The substitute basket of all equity Amundi ETFs is composed of European equities included in the MSCI Europe index. “After the Lehman crisis, these were the consequences,” said Baudson. “One was to keep counterparty risk as low as possible. Two, to maintain high quality counterparties and three, to include only blue chip stocks in the basket of stocks we base the ETF on.”

The basket is part of the synthetic replication whereby the ETF provider has an agreement with a market counterparty to deliver performance of the basket stocks and get the performance of the index being tracked. There are frequent resets (at subscription or redemption) to the substitute basket: on average three resets per fund per month, with others reset more frequently.

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