Barclay’s purchase of Indexchange is a statement of intent - the bank is eyeing markets across Europe for the roll-out of its exchange traded funds business, which is already a leader in the UK.
Barclays will pay €240m to bolster that position in the fast-growing market for ETFs by buying Indexexchange from Germany’s HVB.
The buy could the first of a series used to expand across Europe and Asia, drive innovation and accelerate the development of ETFs in those markets, although Barclays is also looking at building its presence in other European markets organically.
Indexchange, which had assets under management of €15.2bn at the beginning of November, will be combined with Barclays Global Investors’ ETF business, IShares. Together the pair will manage more than €30bn, making the business almost twice the size of its largest competitor.
IShares currently has a presence in France, Italy and Germany, as well as the UK, and Barclays is thought to see opportunities for expansion in France and Italy, both large potential markets for ETFs. In Asia, where ETFs are relatively new, the bank has a start-up operation in Hong Kong.
ETFs can be easily traded like stocks and often carry lower fees than their alternatives. While early ETFs tracked traditional stock market indices, the sector has now broadened to include commodities, precious metals and more complex stock portfolios. ETFs can also be sold short making them a valuable tool for hedge funds.
Those in pursuit of portable alpha, or the separation of returns into constituent parts, can also use an ETF, which if it tracks its index perfectly should have a beta of one and zero alpha, to generate a market return relatively cheaply and then look elsewhere for an uncorrelated source of alpha.
BGI has been expanding its ETF platform with the launch of what is believed to be the world’s first ETF shadowing the infrastructure sector and is also planning a US property index ETF.
