iShares, the Exchange Traded Funds (ETF) platform of BlackRock, Inc. (NYSE: BLK), has introduced a new user-friendly European Due Diligence tool: Know Your ETP. The tool enables professional investors to obtain the key information they need to know about any European Exchange Traded Product (ETP).
“Know Your ETP” is an interactive questionnaire which enables investors to obtain detailed and precise information about a product, regardless of its provider. It is designed to simplify the due diligence process investors currently follow by providing a robust and standardised framework that allows for easy comparison of different products. The “Know Your ETP” tool comprises a four-step process:
1. Investors fill in the name of the fund they wish to analyse
2. The questionnaire is sent to the relevant ETP provider, who completes a comprehensive and standardised set of questions around their business model and the given product’s structure, its replication method, regulatory status, level of disclosure, performance and trading and valuation methods
3. On return of the questionnaire, investors review the responses and have the facility to flag the features and answers which are significant to them
4. Investors can cross compare questionnaires on ETPs offering similar exposures, and analyse which is most appropriate for them, according to their own investment criteria
The development of this tool marks the next phase of the iShares Due Diligence campaign, a pan-European initiative launched in October 2011 to support professional investors in evaluating and selecting the right ETP for their needs. It is also aligned with proposals from regulators such as the European Securities and Markets Authority (ESMA), which stated that one aim of its future guidelines on UCITS ETFs and other UCITS related issues would be to “improve the quality of information provided to investors to allow them to make informed investment decisions.”
David Gardner (pictured), Head of EMEA Sales for iShares, says: “iShares has campaigned for many years that investors should know what they are buying and what a product’s investment objectives are. Our new ‘Know Your ETP’ tool was created to support clients to compare products side by side. It offers a robust framework and clear standardised process which will help them arrive at an informed investment decision more effectively.
“This tool demonstrates our ongoing efforts to enhance industry transparency, which are fully aligned with, and in support of ESMA’s proposals, as well as those from national regulators such as the FSA, BaFin and the Central Bank of Ireland. It follows the key principles BlackRock advocated in its industry ViewPoint in October 2011, which included:
Clear labelling of product structure and investment objectives
Frequent and timely disclosure for all holdings and financial exposures
Clear standards for diversifying counterparties and quality of collateral
Disclosure of all fees and costs paid, including those to counterparties
Universal trade reporting for all equity trades, including ETFs
Christopher Aldous, CEO, Evercore Pan Asset, says: “ETFs provide easy access to a wide range of global asset classes at a very low cost, and we use them extensively to implement asset allocation decisions. This tool is a valuable addition to our due diligence process and makes it easier for us to hone in on important issues such as structure and tracking difference. I see it as a positive development for the wider ETF industry.”
