London
LGIM digs heals in on thematics
LGIM is widening outs its thematic ETF offering, listing three new funds targeting water, medical technology and artificial intelligence.
AIAI and DOCT will track Robo Global indexes that are, in effect, actively managed. AIAI starts with an index universe narrowed down by Robo Global and its team of experts. From this universe AIAI picks and weights stocks based on AI-related revenue and market leadership.
DOCT is a London-listed version of HTEC, which began trading in the US last week. It invests in healthcare technology stocks based on their revenue and how innovative they are.
GLUG will invest in companies that are loosely in the water industry. (The “clean water” fund name is mostly a marketing ruse). GLUG starts with data from water industry lobby group Global Water Intelligence, to see which companies are making good money out of water. Solactive then uses FactSet data to narrow the index universe to companies in utilities, engineering and tech. Companies that make money from water and fall under relevant FactSet sectors qualify for the fund. At the time of writing, the most heavily weighted companies in the index are tech companies. It will be interesting to see how closely GLUG correlates with the Nasdaq 100 despite nominally being a water fund.
All the funds charge 0.49%.
Analysis – the future of indexing
When cost pressures hit a value chain, the last businesses to lower their margins are those closest to the client. In asset management those closest to the client are advisors. Meaning that as cost pressures have hit asset management the past decade, everyone except advisors has had to run at lower margins. (Most advisors still charge 1%, the same as 20 years ago). While the effect this has had on ETF providers is well-known, the effect this has had on the index business has been less noticed.
Much like ETF fees, index margins have shrivelled the past two decades. Where it was once taken as industry lore that index companies run on 70% profit margins, it’s now taken as given that index companies are in the most precarious position in the index investing ecosphere.
In this ever-lower-margin ever-more-precarious environment, there are two index business models that are emerging as victors. The first is scale: get as much business as possible and at low cost. Here, Solactive – as in today’s listing – is doing the job. The second is take bigger risks and hyper-specialise. Here, Robo Global, which specialises in tech-themed indexes, is among the front runners. (Robo Global took almost all the risk on its first US listing of ROBO).
But while these models are the two winners, precarity still stalks. On this score, it is interesting to note that LGIM decided this time to remove Robo Global’s branding from the DOCT and AIAI fund names. I say “this time” because LGIM’s most successful ETF is the $945 million L&G Robo Global Robotics and Automation UCITS ETF (ROBO) – which carries Robo Global’s branding.
Normally we would state that ETF providers are now of sufficient scale that their brand is getting to be bigger than the index providers, which is why Solactive has stolen such a march in this space, however we wonder if this is the case for LGIM versus and index thematic specialist such as Robo. The differences in the approach are outlined above does the specialism of the DOCT get damaged by being lumped in with GLUG, this being said I am still buying DOCT