Investment management firm and US ETF provider Vanguard is hoping to debut a range of ETFs in Europe this year.
The company opened its Vanguard Investments UK business in 2009, registering with the FSA in April of that year and unveiling its initial line-up of index funds the following month.
Vanguard UK managing director Tom Rampulla had indicated the move into ETFs would take place in 2010, but the firm has yet to launch.
Part of this delay may be due to the complications inherent in moving from the US to Europe. As Rampulla points out: "The European market is much more fragmented.
"What is more, ETFs do not carry the same tax advantages in Europe as they do in the US; open-end funds can actually be cheaper than ETFs here. There are still other advantages to the ETF wrapper, such as intra-day trading and access to diverse asset classes, but we have to be sure that an ETF is at least as good value as the equivalent open-end fund."
Meanwhile, Rampulla says the UK team have been focusing on encouraging debate within the industry, particularly around cost, as well as working with the government.
In October 2009, Vanguard UK issued a press release in which the company's head of retail Peter Robertson attacked the misleading implication of the term "Total Expense Ratio" (TER), which does not include transaction costs.
Now, Rampulla stresses that "a low TER does not mean that a fund is high quality; investors need to be looking at other factors as well, such as how well the ETF tracks its index and the bid-ask spread."
As for the look of the European ETF launch when it does come, Rampulla points across the Atlantic.
He says: "You can get an indication of where we'll launch in Europe by looking at our US range. We'll be offering core, broad strategies, tracking the best indices and providing low costs. Even if we launched in something like commodities, it would be a broad product."
As for the structure of the funds, he elaborates: "All our US-listed funds are traditionally replicated - although we do optimise some indices. This will not necessarily be the same in Europe, but certainly our preference is towards physical replication, mainly because the risks are clearer. Some asset classes are difficult to access though, so it is a question of developing a swap model that is easy for investors to understand."
Vanguard argues that its business structure, mutually owned by investors, makes it uniquely client focused and positioned to deliver low costs. Whatever the reason, Vanguard UK's planned move into ETFs comes on the back of a hugely successful year for its parent company.
The latest BlackRock industry review reveals that Vanguard increased its share of the US ETF market by 3.2% up to November last year, as assets in its funds grew by 53.3%. National Stock Exchange end-of-year figures for the US put Vanguard ETFs at the top of the 2010 leader board for cash flows. With inflows of over $40bn, Vanguard raked in $10bn more than its second-place rivals, iShares.
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