Vanguard overcomes delays to launch first ETPs in Europe
From Products Jan 27 2012 BY: Esther Armstrong
, Senior Reporter
, Portfolio Adviser
Vanguard is set to list its first exchange-traded products in Europe following delays with regulators and concerns about market conditions for launch, Portfolio Adviser understands.
Aimed for March, the first European-listed ETPs will offer one product designed around the gilt market, one based on the equity all world index, an S&P 500 ETF and an emerging markets equity product.
Vanguard, which has over 60 ETPs listed in the US market, and is ranked third in terms of ETP AUM – behind only iShares and State Street Global Advisers (SSGA) – increased its market share by 1.2% in the year to December 2011. This compared to a drop in iShares' market share by 1% and a 0.9% increase in market share by SSGA.
The US parent group was launched in 1975 and offered its first ETFs in 2001. But Vanguard Investments in the UK is fairly new, with its first office opened in 2009.
According to a source close to the group, the intention was to launch its first European-listed ETFs in October but there have been various reasons behind the delay.
Firstly, the group was unsure which products to bring to the market and due to volatility last year, did not think the market conditions lent themselves to launching new products.
It is also possible that due to the regulatory heat surrounding the ETP market the group found FSA approval harder-than-expected to obtain.
Teething problems
The group has cited similar reasons for the delayed launch of two international bond index funds originally planned for the first quarter of this year in Europe.
According to a report by Morningstar, Vanguard CIO Gus Sauter, said "operational issues" had caused the launch of the Vanguard Total International Bond Index Fund and Vanguard Emerging Markets Government Bond Index Fund to be deferred and they had "not come together as fast as anticipated".
A further potential factor in the ETP delay is the structure of the Vanguard Group itself, with the US mutual owning 100% of the share capital of the European companies.
"As I understand it Vanguard US subsidises Europe. I would imagine that the European corporate boards would have a few extra hoops to jump through with the US mutual to show they can earn an adequate return for the ultimate Vanguard owners - the US Vanguard investors," Portfolio Adviser's source said.
This will be a particular challenge given the aim by the European business to offer the products in the market.
"This will be tough to do for indices like the S&P 500 and gilts as these are already finely priced," our source continued.
Currently said to be in discussion with market makers on the final terms for the products, Vanguard said it was unable to comment on the fund line up or timings.