Simple is No Longer That Simple
Sometimes simple can be rather complicated. That’s especially true when it comes to index funds. 13 years ago, the relatively easy to understand financial products came to market. But simple those ETFs are no longer. A report by Germany’s Handelsblatt.
Dusseldorf, Germany. “Simple, transparent, flexible,” that is how exchange traded funds (ETFs) have been marketed. But these days, there are many index funds, which are indeed transparent and flexible, but not so simple anymore.
Case in point, the Société Générale subsidiary Lyxor has launched an index fund that bets on volatility – i.e. the volatility of stock market indices – and that generates a positive return when the stock exchanges are particularly turbulent. “The demand for such products is particularly high among institutional investors”, explains Hermann Pfeifer, Lyxor’s German chief.
For some time now, the French have also started offering ETFs on alternative weighted indexes. But they are not alone to do so. Other issuers such as Ossiam, a subsidiary of Natixis Global Asset Management, also offer such products. The ETFs track indexes that are not weighted by market capitalization -as used to to be the case – but according to other criteria. For example, all stocks in the Index may be weighted equally.
This represents an exciting strategy according to Götz Kirchhoff. “We offer our customers such strategies as well,” says the founder of asset management firm, Avana Invest. Kirchhoff was one of the founding fathers of the ETF marketplace.
But particularly when it comes to complex index funds, investors should pay very close attention to price. “These products are usually more expensive than simpler strategies,” says Thomas Mai from the consumer bureau in Bremen. “The difference between buying and selling price, the so-called spread is often greater.”