The Man GLG Europe Plus Source ETF, launched in January 2011, reached assets of USD565m as at 31 May 2012, making it one of the world’s largest ETFs delivering exposure to equity index outperformance.
It is also one of the most successful ETFs providing exposure to pan European equities in 2012; both in terms of performance and net new assets.
The ETF tracks the Man GLG Europe Plus Index, created by Man Systematic Strategies (MSS). This index is a long-only total return equity index, designed to capture outperformance from broker ideas provided specifically for Man GLG. It uses high quality ideas from approximately 60 leading brokers to create a liquid, highly diversified equity portfolio. These brokers are backed by approximately 3,000 equity analysts. MSS aims to further improve the returns from the idea contributors by using a variety of algorithms that detect patterns in the ideas received.
The index has similar market-cap exposure to the broad European equity market, with the potential for enhanced returns. From launch of the index on 30 December 2010 to 30 April 2012 the Man GLG Europe Plus Index has outperformed the MSCI Europe by 2.1%. MSS ran a managed account from 2007 using a similar strategy which provides the history to the index. From its inception on 31 December 2007 to 30 April 2012 the strategy has outperformed the MSCI Europe by 13.2%, or 2.9% annualised.
Pierre Lagrange, co-founder of GLG, says: “We started collecting trade ideas in 2005 at GLG, initially to monitor brokers and then to create strategies using this unique set of broker relationships. The hurdle rate for the brokers is to beat our internal stock pickers, who are very successful, which raises everyone’s game. We now run USD1.25bn using this approach. It’s been great to see Sandy and Khalil grow it into a significant and innovative investment strategy.”
Ted Hood, CEO of Source, says: “I am delighted that our cooperation with Man Systematic Strategies has resulted in an ETF that has had broad market appeal. It reaffirms our belief that ETF investors appreciate access to value added strategies and not just plain vanilla beta.”
Khalil Mohammed and Sandy Rattray, co-managers of the strategy, said: “Source has provided an ideal platform for clients to invest in our strategy, using the five Authorised
Participants to provide clear best execution, liquidity, transparency and cost effectiveness for clients.”
MSS, in conjunction with Campbell Harvey, Investment Strategy Advisor to Man, Professor at Duke University and current Editor of the Journal of Finance have also published a number of research papers on the performance of broker recommendations in Europe. Their key conclusions are that:
• Brokers consistently add alpha when they issue buy recommendations, but not sell recommendations in Europe
• Salespeople at brokers, who select and highlight analyst research to clients, further add value compared to their own research departments
• More experienced analysts outperform less experienced analysts on buy recommendations