ETPs

Exchange-traded products

THE ETP
INDUSTRY
AT A GLANCE

First Exchange-traded product launched in 1993

Now more than US$5.12 trillion invested in ETPs worldwide¹

Expected industry growth to at least US$ 6 trn by 2020²

ETPs can be bought and sold whenever the stock exchanges are open as prices are quoted throughout the day

ETPs are similar to mutual funds, but can be traded intra–day

ETPs are usually eligible for SIPPs and ISAs

ETPs source liquidity from their underlying assets

Short & Leveraged ETPs do not require direct borrowing, options trading or the maintenance of margin accounts

WHAT IS AN ETP?

An Exchange-traded product (ETP) is a financial instrument traded on a stock exchange, like shares. ETPs provide a cost–efficient and secure way to gain diversification in an investment portfolio by gaining exposure to a benchmark or an asset class. They are investments, with generally lower fees than active and index mutual funds, making ETPs a simple way for investors to gain exposure to a wide range of assets. Originally, ETPs combined the cost–efficient, benchmark replication strategy of equity index funds with the listed, intra–day tradability of shares. As the market has matured, ETPs have expanded to cover exposure to an increasing number of asset classes. Now, along with providing equity benchmark replication, ETPs also offer investors the ability to diversify their portfolio by providing exposure to assets previously difficult to access.

ETP SUMMARY

An exchange-traded product (ETP) refers to a financial product that is publicly traded like a bond in the stock market.

Exchange-traded products also let investors diversify their investments and buy and sell like shares.

ETPs are designed to resemble an underlying index or asset’s return, with convenient share tradability and access.

TYPES OF EXCHANGE-TRADED PRODUCTS

1. EXCHANGE-TRADED FUNDS (ETFS)

Exchange-traded funds (ETFs) are investment funds that trade as a single security on the stock exchange. Since the introduction of ETFs in 1993, they’ve expanded significantly in terms of range and variety. Usually, an ETF tracks an index fund, such as the S&P 500, but it can also follow a market, commodity, industry, or even a currency. The price of an exchange-traded fund will increase and decrease, much like most investments. The ETFs trade all through the day in the same way a stock trades.

2. EXCHANGE-TRADED COMMODITIES (ETCS)

Exchange-traded commodities (ETCs) are debt instruments that do not come with interest payments. They are designed to provide access to an individual product or a basket of items. The ETC framework is often used to provide investors with significant exposure to currencies, either as individual currency pairs or as a currency basket.

3. EXCHANGE-TRADED NOTES (ETNS)

Similar to ETCs, exchange-traded notes (ETNs)are debt securities that do not pay interest. These are only intended to track the return on the related asset or index. However, the issuing entity of both is different. While Special Purpose Vehicles (SPVs) with segregated reserves issue ETCs, ETNs are usually issued by banks, do not hold any assets, and are unsecured. Although the yields of ETNs correspond to the underlying index or asset, they are identical to unsecured and classified bonds.

ETPs are designed to replicate the return of an underlying benchmark or asset, with the easy access and tradability of a share. Investors can benefit from the broad diversification of an equity benchmark, gaining exposure to hundreds or thousands of individual securities in a single transaction. Additionally, the wide range of asset classes covered by ETPs opens up more exotic investment areas which historically could only be accessed by institutional investors (such as individual commodities or emerging markets). ETPs generally do all this with a lower fee than actively managed funds and therefore compete with traditional index funds on cost.

CHARACTERISTICS OF ETPs

INTRODUCTION TO ETPs

CHARACTERISTIC

BENEFIT

COST-EFFECTIVE
INVESTMENT

Cost–effective and transparent way of gaining exposure to a benchmark or asset as management fees are generally lower than active and index mutual funds

TRACKS AN
UNDERLYING

Aims to provide the same return as an underlying benchmark or asset, offering a diversified investment in a single transaction

OPEN–ENDED

Shares can be created as necessary to meet demand

LISTED ON
EXCHANGE

Investment performance is accessible intraday through the provision of live prices

TRADES LIKE
SHARES

As simple to buy and sell as shares are any time the market is open

LIQUID ASSET

Liquid asset that is supported by pool of authorised participants and market makers

WHY USE AN ETP?

RISK OF ETPs
In Switzerland, these financial instruments are considered „Exchange-traded products” (ETPs). They do not constitute shares in collective investment schemes within the meaning of the Swiss Federal Act on Collective investment schemes (CISA). Therefore they neither are subject to the approval nor supervision by the Swiss Financial Market Supervisory Authority FINMA. The investors do not benefit from the specific investor protection provided under the CISA.

DYNAMIC MULTI ASSET PLATFORM

DMAP (Guernsey), is a collaborative project with one of the Big Four and will issue all types of ETPs. As an issuer of ETPs, we are fully compliant with Swiss laws. Our Big Four partner assumes all accounting and documentation obligations. DMAP will provide a white label issuing platform for institutional customers, fund and securities dealers who want to benefit from the growing demand for ETPs, especially with digital assets and underlying.