Source has launched the MSCI Emerging Markets ETF, tracking the MSCI Emerging Markets Total Return (net) index.
The ETF will provide consistent tracking of its underlying benchmark through Source’s multi-counterparty derivative approach.
The new product will achieve the performance of the index by entering into total return swaps, thereby providing better returns than are currently being delivered in these products in Europe.
In addition, it is listed on the London Stock Exchange and trades in USD, thereby minimising foreign exchange related tracking error.
Tracking error, particularly on emerging market products, has been a significant concern for investors. The tracking error on existing ETFs based on MSCI Emerging Markets index ranges from one per cent to 5.2 per cent. This is caused by optimisation strategies, operational costs, dividend treatment and foreign exchange impact.
Emerging market ETFs have gained increasing popularity since their launch in 2004 and particularly this past year. Over the last 15 months, there have been more than USD3.6bn of inflows in emerging markets ETFs in Europe, taking the total AUM to USD26bn as of end of March 2010.
The four ETFs based on the MSCI Emerging Markets index currently represent 43 per cent of total European emerging markets ETF AUM.
Ted Hood, Source chief executive, says: “Clients have been asking us to provide ETFs that offer consistent tracking to EM benchmarks and today we can offer that to MSCI EM, the most widely used broad benchmark in the market. Source continues to deliver best of breed products that tackle inefficiencies in the current markets.”
