Citywire NMA Conference 2011
iShares Masterclass: How to access and
FOR PROFESSIONAL INVESTORS ONLY
• How can advisers access ETFs?
Direct / Platform
• How can advisers implement ETFs?
• Due Diligence
Questions to ask
How can advisers access ETFs?
Basic model for access
Through a broker
Client iShares ETF
On a platform
ETFs cannot be purchased directly from iShares - they are traded
between brokers on the secondary market.
Which method of access is best for me?
Trading precision - Real Flexibility – Both aggregated
time dealing with additional and intraday dealing options
trading options available available on some platforms
Complete access – Administrative ease –
Entire range Consolidated
of ETFs Broker Platform reporting and bulk
Cost - Competitive
pricing but Limited availability –
typically for large Not currently available
trade sizes through Fund
Additional admin Cost - Can have Supermarkets, only
burden – Limited client relatively high wrap platforms
reporting functionality dealing costs
Accessing ETFs through a broker
What should an adviser consider?
Brokers can implement different trading strategies for ETF execution
Trading & How does the broker determine best execution?
Execution What types of trading options are available (i.e. limit order, etc.)
Limit order – this means a trade will not execute until the set limit price is reached. This would avoid execution at
a temporarily large discount or premium to NAV.
Costs of trading through a broker
Cost Commission charges
Account set-up costs
Product Brokers authorised to trade securities can also trade ETFs
Availability Full product range is available
iShares Capital Markets team works alongside brokers
A dedicated team that supports the entire ETF execution process
Pre/post trade analysis, optimal trading strategy
Accessing ETFs through a wrap platform
What should an adviser consider?
Does the platform offer real time or aggregated trading?
Does the platform use a broker or offer in-house trading?
How does the platform determine best execution?
What is the ongoing platform fee?
Cost What are the transaction costs for trading ETFs?
Which cost component is most important given my business model?
Which ETF products are offered through the platform?
availability Are there packaged products of ETFs available through the platform if I wish to
outsource investment management?
Can the platform support staff answer my questions?
Do they offer research tools?
What costs are most important given my business model?
When investing in ETFs, ensure low platform charges are not mitigated by high trading costs
Annual Initial Rebalancing Annual Costs –
Platform costs Trading costs Costs based on
Annual charge 0.5% £2500 £100 £200
Trading costs = £10/trade + + =
Annual charge 0.35% £1750
Trading costs = £25/trade + £250 + £500 = £2500
Initial Rebalancing Annual Costs –
Trading costs Costs based on
Annual charge 0.5% £2500 £100
+ + £800 = £3400
Trading costs = £10/trade
Annual charge 0.35% £1750
Trading costs = £25/trade + = £4000
Example based on initial investment of £500k and a portfolio of 10 ETFs
For illustrative purposes only 8
Examples of wrap platforms offering ETFs
iShares growth on wrap platforms
Uptake of ETFs by fee-based advisers has grown exponentially in the past 12 months
iShares Platform Asset Growth
£500 100% annual growth rate
(2009 - 2010) = 106%
Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010
Source: Novia, Nucleus, Ascentric, Standard Life Wrap, Raymond James, and Transact
Source: Global ETF Research and Implementation Strategy Team, BlackRock, Bloomberg. As at July 2010
Build in-house portfolios or outsource
Implementing ETFs: In-House Portfolio Management
Sample allocation of Tax Planning
time spent per
service offering Investment
Fund manager Mortgages
For some advisors, keeping the investment decisions in-house is integral to their business:
Adviser value proposition focused on internal investment research and expertise
Create a personal investment management track record – client retention
Opportunity to construct more bespoke client portfolios
Implementing ETFs: strategy examples
Construct portfolio with broad-based, low-cost core holding
combined with narrowly-focused satellite exposure.
ETFs can be either core or satellite.
Cash Use ETFs to gain instant exposure to a specific index to stay
Equitisation invested in the market whilst looking for a new fund manager.
Tactical Opportunity to add excess return by taking short-term bets on
Asset specific investment areas. Can be based on economic data,
Allocation earnings forecasts, technical indicators, etc.
See the new iShares Market Perspectives for our 2011 outlook
Implementing ETFs: Outsourcing
Sample allocation of Investment
time spent per
For other advisers, outsourcing investment decisions may be the best option for their business model. There are
various reasons to outsource investment management:
Outsourcing asset allocation decisions – reduced internal compliance requirements
Ability to focus time and resources on area of expertise (i.e. tax, financial planning, etc.)
Implementing ETFs: Outsourcing options
Which outsourcing option is best for me?
Model portfolios provided by Direct to discretionary Packaged product (OEIC)
discretionary managers manager
• Potential tax advantage –
• Administrative ease when • Administrative ease capital gains for each ETF
offered through wrap position realised within fund
• Outsourcing of trading and
• Retain control of client implementation functions as • Can be a good solution for
relationship well as portfolio asset small accounts due to scaled
• Only paying DFM for asset allocation transaction costs
ETF Due Diligence
Due Diligence – What should I be thinking about?
ETF Knowledge Expertise / Data
Provider of the market Track Record Publication
Structure Risk Performance Portfolio
Cost Trading Average
TER Costs / Lending
How can we help?
• Equities, Fixed Income, Emerging Markets
• E.g. “Overview of ETF Structures”, “Trading European Exchange Traded Products”
• E.g. “Tax Implications of iShares”, “Tax Update – UK Reporting Funds Regime”
Implementing asset class themes using ETFs
• E.g. “Equity Income – investment and strategies with iShares ETFs”, “Investing in Clean Energy
through iShares ETFs”
Facilitating due diligence
• Holdings, Fund fact sheets, Trading data
Pollyanna Rhodes Kelly Farder
Vice President Vice President
IFA Sales IFA Sales
Tel: +44 020 7668 8585 Tel: +44 020 7668 8113
Email: firstname.lastname@example.org Email: email@example.com
Quick refresher: Introduction to ETFs
What are ETFs?
Exchange Traded Fund / iShares
Type of index tracking fund
Managed to mirror the performance of an index (e.g. FTSE 100)
Aim to provide investors with the same return as the underlying market
Exchange Traded Exchange Traded
Exchange Traded Exchange Traded
Cash / Physical Swap / Synthetic
/ Direct / Indirect
•UCITS Compliant • What is the risk
•Tracking Futures / Physical • What is the structure
iShares - Each physical based iShares ETF represents a
partial ownership in the relevant sub-fund
iShares Portfolio GlaxoSmithKline
purchase stocks to Rio Tinto Traded
represent the Fund
The main reasons for the success of ETFs
Transparency • Investors know the ETF holdings, price and costs
• ETFs offer two sources of liquidity:
Liquidity • Traditional liquidity measured by secondary market trading volume
• Multi dealer model boosts the liquidity of iShares ETFs
• ETFs provide immediate exposure to a basket or group of securities for instant
• Broad range of asset classes including equities, bonds, commodities, investment
• ETFs are listed on exchanges and can be traded at any time the market is open
• Pricing is continuous throughout the day
ETFs offer a cost-effective route to diversified market exposure
effectiveness The average Total Expense Ratio (TER) for Equity ETFs in Europe is 40 bps versus 91
bps (per annum) for the average index tracking fund and 180 bps (per annum) for the
average active fund¹
Source: Morningstar, Global ETF Research and Implementation Strategy Team, BlackRock. As at end February 2010.
Note: the TER numbers are calculated as simple averages
ETF benefits_Overview of ETF benefits_SNUIA_1208_EN_730148
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