www.etfexpress.com special report March 2013 etfexpress Global Awards 2013

Coverline 1 Coverline 2 Coverline 3 LyxOR ETF 4 OF THE BEST PERFORMERS ON MAJOR EQUITy INDICES IN 2012

THE POWER TO PERFORM IN ANY MARKET

ALTERNATIVE INVESTMENTS l ETFs & INDExING l MUTI-ASSET INVESTMENTS l STRUCTURED INVESTMENTS

Always committed to the highest quality standards, four of » RANKING #1 - LyxOR ETF MSCI EMERGING MARKETS Lyxor’s major equity ETFs delivered the best performance versus their benchmark index in 2012*. This proves that not » RANKING #1 - LyxOR ETF MSCI USA all ETFs tracking the same benchmark index perform the same. The outperformance of these ETFs demonstrates » RANKING #1 - LyxOR ETF EURO STOxx 50 Lyxor’s ability to manage each fund efficiently in order to offer the best returns whilst at the same time minimising tracking » RANKING #1 - LyxOR ETF FTSE 100 errors. Behind our commitment to performance is a pledge to the highest quality standards, which runs through every RISKS - Investors’ capital is at risk. Investors should not deal aspect of our range, giving Lyxor ETFs the power to perform in these products unless they understand their nature and in any market. the extent of their exposure to risk. The index tracked by a Lyxor ETF may be volatile. Through Lyxor ETFs, investors are exposed to counterparty risks resulting from the use of an OTC (Over-the-Counter) swap with Societe Generale.

Discover more at lyxoretf.com or email [email protected]

THIS COMMUNICATION IS FOR PROFESSIONAL CLIENTS ONLY AND IS NOT DIRECTED AT RETAIL CLIENTS. Lyxor ETFs are open-ended mutual investment funds established under French Law or Luxembourg Law. This advert is issued in the UK by Lyxor Asset Management UK LLP (Lyxor UK), which is authorized and regulated by Financial Services Authority. *Rankings are based on peer group analysis. One peer group was created for each benchmark index. Each peer group included the 5 largest ETF Share Classes from the Top 20 ETF providers as defined by ETFGI, an independent research and consultancy firm. The 5 largest ETF Share Classes were defined according to the average daily Assets Under Management observed between 30 December 2011 and 31 December 2012. The performance of each ETF was determined by the change in Net Asset Value (NAV) from the last official NAV of 2011 and the last official NAV for 2012. Contents In this issue…

04 etfexpress Global Awards 2013 results

05 Winners prove that innovation is alive and well By James Williams

07 PIMCO Best Fixed Income (excluding cash) ETF Manager

09 Lyxor Asset Management Best Emerging Markets Equity ETF Manager

13 UBS Global Asset Management Best Europe Equity ETF Manager

14 Source Best Alternative ETF Manager, Most Innovative European ETF Provider & Most Innovative North American ETP Provider

15 State Street Global Services AWARDS 2013 Best North American ETF Administrator

16 STOXX Most Innovative Index Provider

18 Northern Trust Best European ETF Administrator

19 Flow Traders Best European & Asia Pacific Market Maker

Publisher

Editor: James Williams, [email protected] Sales Managers: Simon Broch, [email protected]; Malcolm Dunn, [email protected] Head of Events: Katie Gopal, [email protected] Chief Operating Officer: Oliver Bradley, [email protected] Chairman & Publisher: Sunil Gopalan, [email protected] Graphic Design: Siobhan Brownlow, [email protected] Photographs: William Scott Published by: GFM Ltd, 1st Floor, Liberation Station, St Helier, Jersey JE2 3AS, Channel Islands Tel: +44 (0)1534 719780 Website: www.globalfundmedia.com

©Copyright 2013 GFM Ltd. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.

etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 3 Results

AWARDS 2013 The winners

Best Commodity ETP Manager Best Currency ETF Manager Best European Exchange for ETF Securities db x-trackers Listing ETFs London Stock Exchange Best Commodity ETF Manager Best Mixed ETF Manager (Asia) ThinkCapital Asset Management B.V. Most Innovative Index Provider Mitsubishi UFJ Trust & Banking Corp STOXX Best Alternative ETF Manager Best Fixed Income (all excluding Source Best ETF Research Provider cash) ETF Manager ETFGI PIMCO Source Most Innovative North American ETF Provider Best North American ETF Best Fixed Income – cash (money IndexIQ Administrator market) ETF Manager State Street Amundi Most Innovative European ETF Provider Best European ETF Best North America Equity ETF Source Administrator Manager Northern Trust International Fund Vanguard Most Innovative North American Administration Services ETP Provider Best Europe Equity ETF Manager Source Best European Market-Maker UBS Flow Traders Most Innovative European ETP Best Emerging Markets Equity Provider Best North American Market- ETF Manager Boost ETP Maker Lyxor Asset Management Knight ETF Trading Most Innovative North American Best Global (ex-US) Equity ETF ETN Provider Best Asia-Pacific Market-Maker Manager iPath Flow Traders iShares Best North American Exchange Best Global Equity ETF Manager for Listing ETFs iShares NYSE Euronext

Best Asia Pacific Equity ETF Best Asian Exchange for Listing Manager ETFs Nikko Asset Management & Co Hong Kong Stock Exchange etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 4 The ETF industry today

Winners prove that innovation is alive and well By James Williams

As the winners demonstrated at the So anyone who doubts the importance of etfexpress Global Awards 2013 presentation, the ETF market is somewhat in denial. Factor sponsored by Lyxor Asset Management and in that there remains huge growth potential held in London’s Mayfair last month, the in Europe – with the US having led the way global ETF market continues to grow from for the last 20 years – and there’s a lot to be strength to strength. excited about for ETF providers. Year-on-year (through November 2012, Indeed, 2013 looks to be continuing in the based on ETFGI’s global ETF and ETP same vein as 2012. According to the latest insights report), the number of ETFs ETFGI report, ETFs and ETPs posted net increased from 3,025 to 3,336. Total ETF/ETP inflows of USD11.4billion globally in February. assets also increased, from USD1.526trillion The biggest recipients were Equity ETPs, to USD1.688trillion. attracting inflows of USD11.6billion: a clear Sunil Gopalan, etfexpress Publisher, notes: signal that investors have rediscovered “At this rate, the ETF market will rival hedge their risk appetite. Fixed income ETPs, by funds; even though total hedge fund assets comparison, attracted a mere USD1.3billion, reached USD2.25trillion in 2012, hedge fund while commodity ETPs – always a tricky assets have not gained significant traction asset class for investors – suffered net post-08.” outflows of USD4.9billion. Year-to-date 10 etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 5

PIMCO PIMCO Best Fixed Income (excluding cash) ETF Manager

Currently, PIMCO has seven fixed income markets in its Global Advantage Bond Index, ETFs on the PIMCO Source ETF platform. relative to the Barclays Global Aggregate Four of these are “smart passive” ETFs. The Bond Index. other three are actively managed ETFs. “Over the last few years the behaviour “When we launch an ETF we want to of bonds from peripheral Europe have acted make sure that it’s one that adds value to a more like credit risk, whereas bonds from client’s portfolio and we can do that in two EM countries like Brazil have acted more ways: through a smart passive ETF, where like interest rate risk. As a consequence, the benchmark index is designed to be investors are increasingly drawn to EM. In smarter than traditional indices and offers our emerging markets local currency bond smarter index replication based on economic Howard Chan, ETF Portfolio index, we’ve added countries like China and risk factors and a forward-looking approach, Specialist at PIMCO India, which are large drivers of EM growth, or through an active ETF where we but typically excluded from EM local indices,” outright add value to the portfolio,” explains says Chan.Another example of adding Howard Chan, ETF Portfolio Specialist “smart beta” relates to PIMCO’s short-term at PIMCO. high yield ETF. Here, the aim is to provide One of the fundamental flaws of fixed exposure to the high yield market whilst income indices, says Chan, is that they are trying to minimise duration risk. largely market cap-weighted. To passively Consequently, the benchmark index only track such an index, an investor essentially looks at the “zero to five-year part of the lends capital in proportion to a borrower’s market”, says Chan. In addition, a rigorous level of debt; the more debt, the more lent. screening for companies whose viability “Lending officers do not lend based on is in serious question, aims to reduce the how much debt you have outstanding. They potential for capital loss in clients’ portfolios lend based on income. We tried to find a and better meet investment objectives methodology that reflects that in the market. through security selection. What we came up with was the GDP- PIMCO’s short maturity series of active weighted index, where you lend based upon ETFs – spanning USD, GBP and EUR – national income, versus the amount of debt focuses on cash management. In today’s outstanding a particular country has. pernicious low interest rate environment, “Rather than a debt-weighted approach, PIMCO is helping its clients to add a little we use an income-weighted approach.” extra return on cash that they don’t need PIMCO offers a series of three GDP- immediate access to. weighted indices: Global Advantage Bond “A typical benchmark for EUR cash returns Index, Global Advantage Government Bond is EONIA, which returned 0.23% during 2012. Index, and Global Advantage Inflation-linked But through active cash management our Bond Index. EUR short maturity ETF returned net-of-fees “For our European-domiciled ETF, we take 2.54% during the same period. Similar value the Euro component of the Global Advantage can be found in USD and GBP markets.” Government Bond Index. The same GDP- On winning the etfexpress award, Chan weighted approach is applied to the ETF that concludes: “We are delighted to have tracks our Emerging Markets Local Bond received this award which reflects our Index,” says Chan. performance track record and the success This has resulted in PIMCO assigning of our European ETF business that we a higher weighting towards emerging launched just three years ago.” n etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 7 LY XOR The pOweR TO peRfORm in anY maRkeT

DESIGN Your INvEStmENt SoLutIoNS WItH A LEADING SPECIALISED ASSEt mANAGEr

AlternAtive investments • etFs & indexing • multi-Asset investments • structured investments

Lyxor asset management, a subsidiary of Societe Generale Group, was Our investment professionals deliver investment and advisory solutions for founded in 1998. institutional investors in all asset classes.

with over 600 specialists worldwide, Lyxor manages USD 99.4 Bn* of assets with a strong culture of risk-management and research, Lyxor is a leader across four key areas: alternative investments, eTfs & indexing, multi-asset in innovative, transparent and flexible asset management. investments and Structured investments. Discover more at lyxor.com or email [email protected]

* Figures as of 31st December 2012. this material is intended for professional investors only and is not directed at retail clients. This advert is issued by Lyxor Asset Management (Lyxor AM), société anonyme à directoire et conseil de surveillance having its registered office at 17 cours Valmy, 92800 Puteaux (France), 418 862 215 RCS Nanterre, authorized and regulated by the Autorité des marchés financiers (AMF). Lyxor AM is represented in the UK by Lyxor Asset Management UK LLP, which is authorized and regulated by Financial Services Authority in the UK.

C52736 PWM Icebreaker 297x210.indd 1 08/03/2013 11:20 Lyxor asset management Lyxor Asset Management Best Emerging Markets Equity ETF Manager

then, the product range has continued to expand to cover as many emerging markets as possible, providing investors with a broad set of tools with which to build their exposure in a liquid and transparent way. As Hein continues: “The funds are actively traded across multiple exchanges in Europe and supported by various market-makers and authorised ETF participants. In terms of costs, our management fees are relatively low and we are able to provide tracking efficiency across our range of EM products. All in all, we believe investors appreciate these various qualities and we aim to continue delivering across all fronts going Lyxor Asset Management, a subsidiary Claus Hein, Head of forward.” Institutional ETF Sales for the of Societe Generale, is one of Europe’s With Europe steadily catching up with the UK, Netherlands and Nordics leading providers of Exchange Traded Funds at Lyxor Asset Management US in terms of its investment community with over EUR 30 billion in assets under embracing the benefits of ETFs, the number management. Lyxor currently has more of new products coming to market rises than 240 ETFs covering equity, fixed income month on month. For ETF providers, it’s and commodity indices. Lyxor provides an critical to find a competitive edge and extensive set of Emerging Market ETFs leverage it fully to grow market share. including a number of listings on the London “We think it is critical to minimise overall Stock Exchange. implementation costs to maximise investors’ Last year, investors continued to use a experience when investing in EM ETFs. As diverse range of products to gain exposure volumes keep growing and more clients to Emerging Markets via global, regional increase their ETF usage, we will further and country equity indices confirms Claus develop our relationships with market makers Hein, Head of Institutional ETF Sales for the and ETF Authorised Participants to ensure UK, Netherlands and Nordics at Lyxor Asset spreads and trading costs become even more Management. competitive for EM products,” confirms Hein. “For global access in one trade, the Performance and tracking efficiency, Lyxor ETF MSCI Emerging Markets provided however, remain equally as important significant liquidity whilst minimising tracking for investors when assessing one ETF error against its benchmark over the period. product versus another, and at Lyxor, Hein The fund was ranked number one in 2012 in emphasises that these remain “top priorities, terms of performance versus competitors. At particularly when evaluating EM exposures, the regional level, we saw demand for ETFs which can be challenging to replicate in an covering Latin America, Asia ex-Japan and effective way”. Eastern Europe. We also observed significant On winning the etfexpress award, Hein activity across our range of country EM concludes by saying: “We are delighted to ETFs, for example China, Russia, India, receive the award for Best Emerging Markets which are the largest in Europe for each ETF Manager in 2012. We would like to thank respective market,” says Hein. the voters for their support and recognition Lyxor Asset Management launched its first of our EM range which we will continue Emerging Markets ETFs back in 2007. Since developing and strengthening in the future.” n etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 9 The ETF Industry today

5 (through end-February), total net inflows for EM Debt funds in addition to our existing ETPs stand at USD49.1billion. USD-based product so we will continue to It’s far too early to summise how the rest monitor this space,” confirms Hein. of 2013 will play out, but if equity markets are One emerging trend for investors to keep given the chance to trend, equity ETPs could track of within the ETF/ETP market, is the be the real winners. increased level of innovation being brought Even last year, equity ETPs dominated to bear by fund providers. ETFs, quite inflows by a factor of two. Whereas fixed rightly, have long been viewed as merely income inflows stood at USD61.3billion for passive products, constructed of a basket of the year through November 2012, equity securities that track an underlying index. inflows were USD126.9billion. That equates But whilst the role of traditional benchmark to a healthy market share of 66.4 per cent. indices remains vital, it is no longer exclusive. Geographically, North America dominates Secondary indices, which offer slightly with just over 50 per cent market share. more tailored exposure, are providing Perhaps more revealing is that Emerging enhanced returns. In addition, smart beta and Market equity ETPs have nearly twice the actively managed ETFs – whose objective market share to that of Europe: 19.6 per cent is to generate alpha like their hedge fund compared to 10.4 per cent. counterparts – are also gaining traction as the Within that context, Claus Hein, Head ETF market evolves towards offering more of Lyxor ETF Institutional Sales for the UK, “value-added” strategies to investors. Netherlands and Nordics at Lyxor Asset One European ETF provider, in particular, Management, confirms that Lyxor – winner of leading the way in innovation, is Source: Best Emerging Markets Equity ETF Manager winner of three awards this year – Best this year – has already had a positive start Alternative ETF Manager/Most Innovative to the year “in terms of inflows and overall European ETF & North American ETP turnover across the EM range. Provider. Among its suite of 86 ETPs, 14 “Specifically, the Lyxor ETF MSCI of them fall into the value-added strategy Emerging Markets has been very popular as bucket (11 of them are smart beta, three are investors have been adding to their broad alpha strategies). global EM allocations. The fund has raised Michael John Lytle, Chief Development about USD200million in net new assets Officer at Source, says that while Source will year-to-date. Notably, there has also been continue looking to increase the number of activity in the four main BRIC country funds value-added products, it would only ever be with China still being particularly attractive to done in proportion to the number it currently many clients. offers. “When you put on these value-added “On the Fixed Income side, investors are strategies, you do so in smaller numbers. expressing interest for an expanded set of They take a lot of work; you don’t just roll

etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 10 The ETF Industry today

them out in batches. You have to go out and – has developed a suite of indices that better tell the story, do roadshows etc. reflect the way the world has changed in “We don’t plan to skew our offering recent years. Most fixed income indices are into the beta plus and alpha space to the market capitalised-weighted, which simply detriment of our primary and secondary means that investors end up allocating benchmarks; these remain core to us. I think more to countries with the highest level of we could add more primary and secondary indebtedness. benchmarks in the fixed income space, for What PIMCO has done is develop three example. We currently have seven products GDP-weighted indices that provide investors and while we cover high yield bonds, active with higher exposure to stronger countries cash management strategies and select – particularly Emerging Market countries like sovereigns we see opportunity to offer a Brazil – whose debt to GDP ratios are much wider spectrum of products.” lower than those of developed countries. A great example of where innovation is The three GDP-weighted indices are: taking place is precisely within the fixed Global Advantage Bond Index, Global income space. PIMCO – winner of this year’s Advantage Government Bond Index, and Best Fixed Income (excluding cash) Manager Global Advantage Inflation-linked Bond Index. 17 etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 11 Who wins when UBS ETFs win awards?

While winning awards may be good for UBS, it’s even more rewarding for our clients.

We are delighted that UBS Global Asset Management has been awarded ‘Best Europe Equity ETF Manager’, as well as many other specific awards recognising the quality of our products, portfolio management and services.

But awards are simply not enough.

We never stop thinking about how to deliver the best ETF solutions to you. ETFs how you want them.

UBS ETFs replicate more than 75 indices, totalling over USD 13 bn in assets*. And we consistently launch new solutions to match the changing needs of globally-minded investors.

To find out more about UBS ETFs, please visit www.ubs.com/etf

We will not rest ab

For marketing and information purposes by UBS. For Investment Professionals only - Not for onwards distribution to retail clients. Past Performance is not a guide to future performance. The key symbol and UBS are among the registered and unregistered trademarks of UBS. © UBS 2013. All rights reserved. *Data as at 31 January 2013. UBS Global asset management UBS Global Asset Management Best Europe Equity ETF Manager

Last summer saw UBS Global Asset ETFs, UBS Global Asset Management has Management enter the UK ETF market with a shown its innovative side in creating a dual bang. On 28 June 2012, 66 ETFs were listed share-class model: an “A” share class, and on the London Stock Exchange; the largest an “I” share class. single ETF listing in the Exchange’s history. “Our ‘I’ share class offers a significant “The listing of 66 ETFs on LSE last year discount in management fees to all investors underscores our commitment to the UK who invest large blocks. This class is the market. Overall, we focus on four core cheapest in Europe. Our ETFs perform very European markets: Switzerland (SIX Swiss well with the combination of our strong Exchange), United Kingdom (London Stock expertise in passive asset management, our Exchange), Germany (Xetra) and Italy (Borsa Clemens Reuter, Head of unique pricing structure and our excellent Italiana). Across all markets, we saw positive ETFs for UBS Global Asset securities lending model, which provides our net inflows in 2012. This confirms that we Management funds with additional revenues,” confirms were justified in our decision to expand our Reuter. distribution capabilities,” comments Clemens Another key reason for UBS Global Asset Reuter, Head of ETFs for UBS Global Asset Management’s success in the ETF market Management. is that it has over 25 years of passive Andrew Walsh, Executive Director and management experience. Says Merz: “We Head of UBS ETF Sales UK says that “while use heavily automated processes and I think physically replicated products are still used that’s where we, as a large global asset by the majority of UK ETF-users, increased manager, have a natural advantage; you transparency and client awareness of need to be a precise passive manager to be the benefits of synthetic ETFs to deliver successful in the ETF space.” exposure to difficult to access underlying “It’s all about knowledge,” adds Reuter. indices is a major attraction.” Walsh cites “Our team knows exactly how to develop the UBS-ETF CMCI Composite (USD) an ETF, be it physical or synthetic, while SF-I as a good example of a swap-based our dedicated ETF operations team ensures product gaining a lot of traction amongst UK that there are no errors in the processing of investors. our ETFs. When you have dedicated people Currently, UBS Global Asset Management working on one product segment, it makes it offers 46 ETFs on equity benchmarks, with a very robust and high quality product.” Thomas Merz, Executive Director, Head UBS On winning the etfexpress award, Reuter ETFs Switzerland & Liechtenstein adding: comments: “With the largest ETF listings in “In terms of inflows last year, emerging the history of two major stock exchanges, market and US equities were very popular, we have demonstrated our commitment as were Canadian equities towards the end to bringing UBS ETFs to where our clients of the year.” are – and in the way they want them. So For Europe, specifically, Reuter notes that while winning awards may be good for us, four Equity ETFs were particularly popular. it’s even more rewarding to our clients. We These were: EuroSTOXX 50, MSCI Europe, are proud to be the winner of this award, MSCI EMU, and FTSE 100. which recognises the quality of our products, Aside from the solid performance of its portfolio management and services.” n etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 13 Source Source Best Alternative ETF Manager, Most Innovative European ETF Provider & Most Innovative North American ETP Provider

As one of Europe’s leading and most the exposure to more highly indebted issuers; innovative ETF providers, Source continues unsurprisingly, there’s a much greater to set new milestones. Last year, Source weighting towards BRICs which as a group Physical Gold P-ETC attracted more net new represented 50% of EM (or 20% of global) assets than any of its competitors, adding GDP in 2012 and are expected to increase to over USD1.7billion (compared to USD1.2billion 27% of global GDP share by 2020*. in 2011). Moreover, with USD7.6billion in In the equity space, Source offers an turnover, SGLD was the second most traded equally innovative product: the Man GLG ETP on the London Stock Exchange. Europe Plus Source ETF. A long-only Source now manages in excess of product, the “beta plus” element is derived USD13billion in assets. Of the 86 ETPs it Michael John Lytle, chief from Man GLG’s unique relationship with offers investors, 25 of them each have over development officer at Source brokerage houses, using the highest USD100million in assets. conviction BUY recommendations from equity Innovation is a key element to the firm’s analysts in order to trade systematically. ongoing success. “The strategy harnesses the broker As well as providing 19 “primary beta” anomaly – there is value in broker products such as the S&P 500, MSCI recommendations. Man GLG has particularly Europe, MSCI Emerging Markets, FTSE strong and productive relationships with 100 etc, Source also offers a range of its brokers. In addition, asset managers 53 products delivering beta returns from typically fail to act immediately on broker complimentary secondary benchmarks. recommendations; it may take them 20 days “Our approach to developing products or more. By adjusting exposure promptly has been to combine primary benchmarks on the back of these recommendations, that provide efficient beta exposure and the Index captures more of the upside,” secondary benchmarks such as small-cap comments Lytle, confirming that the fund indices, optimised sector indices, which now has USD900million in assets. round out our pure beta offering. We also Last year, Source unveiled the LGIM offer 11 “beta plus” products and three Commodity Composite Source ETF; a products that target alpha (actively managed diversified, second generation broad-based by PIMCO),” explains Michael John Lytle, commodity ETF with AuM of over USD175 chief development officer at Source. million, but when asked about plans to add Whilst some providers might think that further value-added strategies in 2013, Lytle developing ETFs is a simplistic exercise, says: “We’re looking but we don’t intend to Source is very much of the opinion that not skew our offering to the detriment of our all ETFs need be alike and that specialisation primary and secondary benchmarks.” is valuable if offered in addition to a broad On winning the etfexpress awards, Lytle beta product suite. adds: “We’re very proud and grateful for Its partnership with PIMCO is a great this recognition from clients and the ETF example of innovation at work. The PIMCO community. The focus on innovation is, we EM Advantage Local Bond Index Source feel, in keeping with where we at Source ETF, which launched in 2011, uses a smart are dedicating our energies and have passive approach to physically replicate index endeavored to differentiate ourselves.” n returns. The index itself is GDP-weighted *According to estimates from Goldman rather than market-cap weighted, to reduce Sachs Economics, March 2013. etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 14 State Street Global services State Street Global Services Best North American ETF Administrator

State Street is the largest 3rd party provider of relationships to the success of an ETF, our ETF services globally and the largest provider strong relationships with APs will ensure of actively-managed ETFs (as measured by that they receive the highest level of service assets under management). Our industry- available. leading global ETF servicing capability Web-based orders: Authorised leverages a state-of-the-art “cloud-enabled” participants can create and redeem ETFs via platform, providing full integration to core our web-based portal, streamlining trading technology, end-to-end automation and full and approvals. Designed as a single-point of client transparency via an ETF dashboard. access to multiple ETF sponsors, the portal As the first global custodian to service provides direct access to global ETFs in ETFs in Australia, Hong Kong, Luxembourg Frank Koudelka, Senior Vice multiple currencies through a single interface and the United States and the only provider President – ETF Product supplying a direct link between market servicing each of the major ETF markets Specialist, State Street Global makers, distributors, transfer agents and Services (Asia-Pacific, Canada, Europe and the United sponsors. The portal supports all applicable States), State Street’s institutional knowledge order types used in the market today. and breadth of experience assists our Transfer agent: Once an ETF is created client launch of new funds, and provides or redeemed, we execute and reconcile individually customised solutions while distribution payments to clearing houses and ensuring that ETFs are serviced accurately ensure ETF units are reconciled to the local and efficiently. State Street deploys a team of depository. experts to support the launch of new asset ETF Client Dashboard: Our information managers as they enter into the ETF market. delivery solution on my.statestreet.com Our broad, global capabilities include: provides near real time views of the ETF ETF Launch services: Offering processing lifecycle, authorised participant consultative services ranging from general order information, thought leadership and ETF education, operational flow analysis consolidated ETF reporting. and the preparation of regulatory, oversight Industry intelligence: As a premier provider and exchange listing documents, our team of ETF services globally, we provide our of servicing professionals supports your clients with market and regulatory updates, organisation, ensures successful fund statistics, trends and news via a monthly ETF launches and delivers ongoing operational newsletter and a quarterly perspective report. guidance. We also leverage dedicated and Core accounting and custody: We experienced ETF project managers. leverage our robust global accounting Basket creation calculation and platform to provide full accounting services, dissemination: State Street services include as well as specialised ETF processing. Our receipt of PCF data, daily creation and global operation centers and local legal and dissemination of baskets to all applicable regulatory expertise ensure 24 / 7 worldwide parties and generation of basket trade custody support for ETF servicing. instructions. Fund administration: As part of our fund Dedicated AP relationship management: administration services, we offer support State Street provides a dedicated ETF for applicable regulatory matters including servicing team to provide an unparalleled treasury services, compliance monitoring, level of support to Authorised Participants. financial reporting, tax and legal services and Understanding the importance of these trustee services. n etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 15 Stoxx STOXX Most Innovative Index Provider

STOXX Limited won the etfexpress award supersector, size, regional and total market for Most Innovative Index Provider again indices covering global equity markets. The this year, making it the first company in the company also launched the STOXX® China industry to win the accolade for the fourth A, China B, China H and China Red Chip consecutive time. Total Market indices, offering international as “We introduced many indices in 2012, well as domestic Chinese investors a first set spanning various risk-based approaches of transparent and rules-based indices for to the managed futures space to other the world’s second largest economy. strategies. We also introduced indices for In May of last year, STOXX also expanded new global regions, expanding for example its ESG index family for sustainable our footprint in China,” confirms STOXX Chief investing, releasing regional STOXX® ESG Executive, Dr Hartmut Graf. Leaders blue-chip indices for North America, Investors’ search for alternative beta Asia/Pacific, Europe and the e`urozone, continued last year, prompting STOXX to which represent companies that are global offer products aimed at risk. leaders in terms of environmental, social and STOXX’s Minimum Variance family, governance criteria. introduced in May, is a first-of-its-kind, The indices are the first sustainability based on a sophisticated methodology indices with full transparency over the and a fundamental factor model provided selection method and scores used, essentially by Axioma. The indices are designed to eliminating subjective elements from selection. minimise risk by reducing the volatility of In keeping with its mission of providing the underlying index. Two versions of each investors with innovative products during index are available, with the constrained difficult economic times, STOXX introduced version optimising the benchmark index the iSTOXX® Efficient Capital® Managed with respect to volatility, offering investors Futures 20 index in December of 2012. an improvement over the benchmark. The The index is the first benchmark for the unconstrained version, a novelty in the index Managed Futures space and exhibits a lower world, provides a strategy index minimised overall correlation to traditional asset classes for volatility that is not restricted to follow a such as stocks and bonds. specific benchmark too closely. Also in December, the company launched The EURO iSTOXX® 50 Equal Risk index, the STOXX® Global 1800 EM Exposed index, released in June, offers a risk-balanced blue- allowing investors to gain emerging markets chip representation of supersector leaders in exposure by buying shares of companies the eurozone. The objective of the equal risk listed in developed markets, which generate portfolio is to find a risk-balanced allocation 33 per cent or more of their revenue outside such that the risk contribution of each of developed markets. asset in the portfolio is equal. This avoids a STOXX celebrated its 15th anniversary concentration in specific risk. in February 2013. The company’s index The STOXX® Low Risk Weighted indices expansion in 2012 and the years before focus on stocks that have displayed the shows it has grown from a European greatest price stability in the past year and specialist to a global expert. represent the least volatile companies in a On winning the etfexpress award, respective benchmark. The index family was Graf comments: “This is an honor and launched in October. provides evidence that the market values In September of 2012, STOXX expanded its our innovative products, even during tough Global Index family with the launch of 1,200 economic times.” n etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 16 The ETF Industry today

11 In addition, PIMCO has developed three Equity ETF Manager – has developed a actively managed ETFs – available in USD, dual share class model to tackle the cost GBP and EUR – that are designed to help issue. The A-share class model is priced investors overcome the challenges of cash like all other ETF products in the market. By management at a time when holding cash comparison, the unique I-share class model has become an expensive exercise. is aimed more at institutions who buy large “For cash that clients don’t need to use blocks of ETFs, and who can now enjoy a for up to six months we actively invest in low large discount in management fees. duration investment grade securities with an Explains Clemens Reuter, Head of UBS average maturity of less than three years. ETFs: “We are the cheapest in Europe, which We can buy and rotate through a range of also comes through in the performance of different short-term instruments to ensure the product. Our products perform well on that yields remain positive. For instance, the portfolio management side, they have through careful security selection, exposure a unique pricing structure due to our dual to state-run agencies that are explicitly share class model, and on top of that we government-guaranteed can offer additional have an excellent security lending model yield from a liquidity premium without which provides our funds with additional sacrificing quality. revenues.” “A typical benchmark for EUR cash UBS certainly made a big splash when returns is EONIA, which returned 0.23 per it listed 66 ETFs on the London Stock cent during 2012. But through active cash Exchange last June; the largest ever ETF management, our EUR short maturity ETF listing on the exchange. Across all markets, returned net-of-fees 2.54 per cent during the UBS enjoyed positive net inflows in 2012. same period,” explains Howard Chan, ETF This, says Reuter, “confirms that we were portfolio specialist for PIMCO. justified in our decision to expand our Another key area of innovation for ETFs distribution capabilities and confirms that our is pricing. With so many providers out there, thinking was correct”. being able to offer a cheaper Total Expense UBS offers 46 ETFs on equity benchmarks, Ratio than one’s competitors is vital. This is and for the vast majority of them this dual something that firms like Source are all too share class model is available to investors. aware of – its Source Physical Gold ETC is Given the firm’s long track record in passive now one of the most liquid and cost-efficient management, it is unsurprising that UBS products with a 0.29 per cent annual fee. moved into the ETF market several years ago. UBS – winner of this year’s Best Europe “We use heavily automated processes 20

etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 17 Northern Trust Northern Trust Best European ETF Administrator

Northern Trust’s focus on supporting its by ETF provider, Source, in partnership with diverse client base to navigate industry Legal & General Investment Management. challenges and opportunities over the past As an ETF service provider, Northern Trust 12 months has culminated in being voted has ensured that its solutions and systems ‘Best European Administrator’ for the second are to the forefront of any challenges that year running at the etfexpress Global may emerge. “During 2012 we upgraded Awards 2013. our ETF infrastructure delivering a ‘one- “2012 was an exciting time for Northern stop-shop’ technology solution dedicated Trust’s ETF business,” says Paul Heffernan, to ETFs, which integrates core processing Northern Trust’s Head of Business systems within Northern Trust and monitors Development, ETF Fund Administration Paul Heffernan, Head of the entire ETF deal lifecycle,” explains Fiona Europe. “We launched new and innovative Business Development, ETF Moore, Northern Trust’s Head of ETF Fund Fund Administration Europe at products with clients, expanded into new Northern Trust Administration Europe. markets and increased our client base. Having been at the cutting edge of the The conclusion of the ESMA consultation European ETF market since its origins in was a welcome development for the wider 2000, Northern Trust has assembled the ETF industry and this has delivered some most experienced team of ETF administration certainty to the market, which we believe specialists available in the market says bodes well for our continued success Heffernan, who adds: “They provide the in 2013.” highest quality advice to our clients and Northern Trust has been providing award ensure even the most complex products are winning fund administration solutions for brought to the market quickly and efficiently. European ETFs for more than 10 years. We thrive on complexity – that’s what makes It supports physical, synthetic and hybrid us different.” ETF models, including both cash and Fiona Moore, Head of ETF Indeed, experience, knowledge and in-specie dealing methodologies for a broad Fund Administration Europe, expertise lie at the heart of the firm’s market Northern Trust range of global assets, including equities, leadership position. It knows what is needed fixed income, real estate, infrastructure, to achieve success in the ETF industry, listed private equity, regional and sector enabling it to design servicing models for its specific ETFs. clients to fit their needs in today’s fluctuating Currently, the firm supports in excess of market environment. 1,000 primary market deals a month. “Servicing underpins all aspects of our 2012 certainly ended well for Northern model incorporating a tailored approach Trust. In line with its focus on offering for investment managers, Authorised innovative ETF administration solutions, Participants and investors. Our commitment Northern Trust acted as administrator and to the ETF industry and development of custodian for National Bank of Abu Dhabi market solutions backed up with (state of as it made a series of enhancements to the art) infrastructure ensure we support our the region’s first ETF, including moving clients’ ETF strategies with a holistic vision,” from swap based replication to physical comments Moore. replication. The renamed NBAD OneShare On winning the etfexpress award, Moore MSCI UAE ETF is the first ETF of its kind in concludes by saying: “We are delighted to the Emirate. win the award again this year, which serves Another success, was the appointment as a recognition of our unrivalled experience, as administrator to the innovative LGIM expertise and commitment to the ETF Commodity Composite Source ETF, launched industry.” n etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 18 FLOW TRADERS Flow Traders Best European & Best Asia Pacific Market Maker

Flow Traders is a global and independent The team is in close contact with asset ETP market-making firm. Founded in 2004 managers and supports them with the in Amsterdam, Flow Traders today has selection of ETFs, as well as imparting its major trading operations in Europe, Asia- collective knowledge on when best, and Pacific and the US. With a team of over 170 how, to trade. With the number of ETFs professionals, of which more than 60 are continuing to increase worldwide, the traders, Flow Traders provides continuous different structures, fees, TERs, tracking liquidity for ETFs, ETCs & ETNs on all major errors and all the various trading venues exchanges and trading venues worldwide. means that having this know-how has never To maintain its position in the market, been more vital.

Flow Traders requires access to the right Bernardus Roelofs, Global “At Flow Traders, our independence information, as fast as possible, and Head ETF Sales Trading at Flow and focus is highly recognised. This helps the ability to respond instantly to market Traders asset managers a lot with time-consuming movements. The Flow Traders group has analysis. In addition, they get the prices built its own unique state-of-the-art software directly from the market maker and do not that allows it to calculate, quote and react have to go through a broker who charges in real-time to any price movement on any them a commission; lower costs equals global exchange. With more than 75 stock better performance!” exchange memberships worldwide, Flow The trend of investors (long-only asset Traders has access not only to the broad managers, private banks, pension funds, etc.) spectrum of global ETF products but also to contacting ETF market makers directly for any available future, stock or other hedging quotes will continue as participants seek to vehicle. This, along with Flow Traders’ trade with the source of liquidity, in Roelofs’ proprietary infrastructure and software, opinion. Trading OTC enables participants allows it to operate 24 hours a day across to negotiate terms in a flexible fashion four continents. with respect to settlement details, including Bernardus Roelofs, Global Head ETF dates, depot and currency. This saves costs, Sales Trading at Flow Traders, tells results in better pricing and, ultimately, etfxpress: “Since the start, we have been better performance of their investments. committed to providing liquidity and helping Most institutional investors recognise that asset managers and investors with quality trading ETFs OTC allows them to benefit on-exchange execution.” from the market maker’s ability to leverage Thanks to this dedication, Flow Traders on-exchange liquidity. More than two-thirds has become the leading ETF liquidity of the total ETP volume in Europe and Asia- provider and supporter of the ETF Pacific is traded OTC. industry, both in Europe and Asia-Pacific. On winning the etfexpress award, Says Roelofs: “Our ETF sales traders in Roelofs comments: “We feel honored that Amsterdam and Singapore can provide so many market participants voted for us institutional investors directly with highly and are delighted that we have won these competitive bid-offer prices on an OTC basis two awards. It truly shows that the market for any ETF & ETC from all issuers and with recognises our commitment to liquidity, our reference to all major exchanges world-wide, competitive prices, and the dedication of our including pre-market and after-close trading.” company within the ETF industry.” n etfexpress GLOBAL Awards Special Report Mar 2013 www.etfexpress.com | 19 The ETF Industry today

17 and I think that’s where we, as a large global on when best and how to trade. With the asset manager, have a natural advantage; increasing number of ETFs worldwide, the you need to be a precise passive manager different structures, fees, TER, tracking errors to be successful in the ETF space,” adds and all the various trading venues, this know- Thomas Merz, Executive Director, Head UBS how is ever more vital,” adds Roelofs. ETF Switzerland & Liechtenstein. For Europe in particular, the ETF market Lyxor’s Hein adds a further comment in remains an exciting and vibrant place. The relation to costs, using Emerging Market opportunities for providers are huge. But with ETFs as an example: “We think it is critical so many products to choose from, providers to minimise overall implementation costs have to continue to push the envelope: be to maximise investors’ experience when that through offering niche strategies, access investing in EM ETFs. As volumes keep to new markets, low TERs, working with growing and more clients increase their more Authorised Participants, developing ETF usage, we will further develop our “value-added” strategies that move away relationships with market makers and ETF from pure passive investment. Authorised Participants to ensure spreads But ETF providers should, at the same and trading costs become even more time, not get too carried away. In Europe, competitive for EM products.” there remain a huge number of investors Indeed, the role of market makers cannot who still don’t understand ETFs and have be understated. With such an enormous never invested in them. With the introduction variety of products and asset classes within of the Retail Distribution Review in the UK, the ETF market, providing the necessary which removes fee commissions, the idea liquidity – which in turn helps keep bid-offer is that independent financial advisers will spreads as tight as possible – is one of the start looking beyond products they sold most important underlying functions. historically. Firms like Flow Traders – winner of this Deborah Fuhr, founder of ETFGI – winner year’s Best European and Asia Pacific of this year’s Best ETF Research Provider Market Maker – are focused on providing – comments: “There’s still a large need for institutional investors with highly competitive education among investors on the benefits bid-offer prices on an OTC basis for any ETP, of ETFs.”This, she says, could well result in “from all issuers and with reference to all the more plain vanilla, easy to understand major exchanges world-wide, including pre- ETF products, attracting further inflows in market and after-close trading”, comments 2013 and beyond, as investors become more Bernardus Roelofs, Global Head ETF Sales familiar with the market. Trading at Flow Traders. “The first place many investors choose to “The team is in close contact with asset invest is in physical gold so I would expect managers and supports them as well with to see continued inflows into physical gold the selection of ETFs and knowledge sharing products going forward.” n

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