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UBS – Most Innovative European ETF Provider


UBS Asset Management has been offering ETFs for over 12 years across continental Europe but it was only in the last few years that they entered the UK market from which point their business has been gaining strong momentum. 

Since the end of 2012, UBS has seen assets in ETFs in Europe grow from GBP6.8 billion to GBP18.2 billion as of the end February 2016 with a market share of 5.6 per cent.

Andrew Walsh, head of UBS ETFs for UK and Ireland, says: "Our range of ETFs offering core exposures have had a lot of interest but it's really the suite of currency hedged equity ETFs which we launched two years ago which have really grabbed a lot of the attention".

Walsh explains that with rising global currency volatility, there is increasing interest in products with currency hedging embedded into them. He also notes that there is generally more awareness from investors about the risks of currency fluctuations impacting investment returns – and more awareness that they can do something about it now.

Through 2014 and 2015, he notes, if you had been positive on the prospects of the European equity market but also saw downside in the Euro against Sterling, you very likely would have walked away from that trade. A British-based investor who correctly called the upside in the European equity market through that period would have lost a major part of their returns due to the pound's slide against the Euro. Of course buying any fund with embedded currency hedging is a double-edged sword. If the foreign currency you are exposed to appreciates while you are invested, you will have lost out. The US dollar offers a good example of this as it has appreciated slightly against sterling in recent years. Thus, if you had invested in a US-exposed fund with embedded GBP hedging you would have foregone that upside delivered by a strengthening dollar vs sterling.

Walsh says that UBS AM's view on this has always been about offering tools to help to mitigate the effects currency fluctuations can have on investment returns, not about promoting tactical currency bets. But perhaps not surprisingly, there have been many investors who use currency hedged ETFs and other currency hedged funds to take a punt on a currency with a concurrent view on a specific underlying market. 

The firm has won Most Innovative European ETF provider which not only reflects the success of their currency hedged equity ETFs – but also their currency-hedged fixed income range. "This area is particularly interesting because returns from currency movements can often outweigh both the price and coupon returns when investing in foreign fixed income," Walsh explains.

The bank has also developed a new share class structure which for example allows investors to move easily out of the plain vanilla ETF and into its currency hedged satellite versions. "This now can be done as a conversion at the share class level – not a sale order and a subsequent purchase at sub fund level. Thus, it's considerably cheaper to effect and there is no tax impact" Walsh says.

Innovation at UBS ETFs has extended to other areas as well with strong inflows into their eight SRI ETFs (including the first fixed income SRI ETF in Europe) and more recently currency-hedged SRI ETFs. 

UBS has also launched a suite of Alternative Beta ETF offering exposure to the USA and Eurozone tracking four MSCI indices which provide exposure to value, quality, low volatility and yield factor tilts. Very recently, UBS launched a suite of currency hedged variations on the products. These ETFs offer a rules-based product which effectively provides an active approach vs. standard market cap weighted indices

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