But Consider Cost, Liquidity, Complexity
It seems like the perfect pitch for retirees: a financial product that protects principal and offers some growth potential to help fight inflation.
Or, still a decade or so from retirement but needing to boost returns to hit your number? Another product won't protect your downside but promises twice the market's positive return.
These are just two examples of the booming structured-products industry, which last year saw new U.S. issuances jump 44 percent from 2006, to $114 billion, according to the Structured Products Association, a New York-based trade group.
Behind the appeal of enhanced returns or insuring investors' principal, however, are concerns about the products' cost, liquidity and complexity for retail investors.
Financial institutions sell the notes under a variety of names in increments as low as $1,000, offering returns linked to particular market results over a period of time, say, three to eight years. One type of note might offer twice the return of the Standard & Poor's 500 index if it goes up (subject to a cap), but would have full exposure to any decline.
Another type might cap positive returns at a slightly lower figure but offer some downside protection — say, covering the first 10 percentage points of loss.
In the case of principal-protected notes, the contracts might be a hybrid of an FDIC-insured certificate of deposit issued by a bank and an option on the S&P 500 index issued by a brokerage firm. The investor essentially would receive the return on whichever performed better.
Many mutual fund companies and brokerages offer structured products on their trading desks, though often it involves a phone call to a representative to get to a full menu of all the notes being provided. Big players include JPMorgan Chase, HSBC, Morgan Stanley and Merrill Lynch.
Fees typically are embedded into the products, so consumers may find it difficult to comprehend total costs. There are underwriting fees to the banking firm that creates the product and brokerage commissions that combined could exceed 3 percent of an initial investment. Tack on ongoing management fees and the implied costs of caps on earnings.Some buyers have taken to the secondary market — financial exchanges — to escape the issue costs, but the flip side is that sellers trying to unload the products before the term expires have at times been stung by that illiquidity.
One concern is issuer risk. Given the problems in mortgage-related and other derivatives, consumer advocates worry that retail investors could get swallowed up in a round of defaults.
The derivative products also don't pay dividends like you'd receive if you made a direct investment in a stock-index mutual fund.
SPA-2008
Saturday, May 24, 2008
Thursday, May 22, 2008
DJI's PRESTBO: SPs are "Ingenious, Fascinating Vehicles"
NEW YORK (MarketWatch) -- One unique type of indexed investment is rapidly gaining popularity: "Structured products" are short-term to intermediate-term notes, which normally would pay interest. These don't. Instead, their payoff usually depends on the performance of an index, or maybe a commodity price such as oil or gold.
The required performance is specified in the offering documents for these products. For instance, one product may pay off if the Dow Jones Industrial Average exceeds a particular level by the maturity date, while another pays if the Dow falls below a certain level. It's all in how an investment bank structures the product -- which is another way of saying what the bankers think will sell.
Actually, the Dow examples are of the plain-vanilla variety. Many structured products nowadays are increasingly sophisticated, not to say complex, and are incorporating strategies as well as securities.
Consider, for example, a $2.2 million issue of "Buffered Return Enhanced Notes" that J.P. Morgan Chase & Co.issued last month.
This product essentially is a bet that the commercial and residential real estate markets will recover by April 10, 2010, when the notes mature. The index-linked assets in this product consist of a basket of three ETFs: iShares Dow Jones U.S. Real Estate Index Fund, Financial Select Sector SPDR Fund,
This basket -- in which the iShares real-estate fund accounts for 60% and the other two ETFs are 20% each -- was priced on April 2. J.P. Morgan Chase set this level (a total of $51.24 for the basket) at 100. If the basket price level is higher in two years, investors get their principal back plus two times the percentage gain of the basket.
This is the "enhanced" part of the structure. If the basket ends up at 112, the note would pay out $1,240 for each $1,000 invested, or a 24% total return. The upside potential return is capped at 42%, which means anything more than a 21% increase in the basket does nothing for the investor.
But what if the bottom falls out and the basket ends 30% lower at 70? The investor receives $850 for each $1,000 invested. That's only half of the basket's drop because the note offers protection against a decline of 15% -- the "buffered" part of the structure. If the basket fell to zero, the investor would still get $150 for each $1,000 face amount.
Structured products appeal to investors for a variety of reasons, not least of which is the usually relatively short wait to find out if they've won or lost. According to the Structured Products Association, $114 billion of these instruments were issued last year, up from $64 billion in 2006. So far, this year is on track to reach $120 billion, a 5% increase.
That's impressive growth during a time of turbulence in many markets and asset classes. Keith A. Styrcula, chairman and founder of the association, says one of the driving factors is a "profound shift in investor thinking -- that active management isn't worth the extra cost."
Individual investors take about 45% of structured products and 55% go to institutions, Mr. Styrcula says. "Only 5% to 10% of the investment advisers and brokers are familiar with structured products now. As more of them become so, we'll see growth in the number of individuals participating either directly or through certain mutual funds," he adds.
Rules and caveats
If you're considering a structured product, what should you be aware of?
1. Structured products are sold, not bought. The broker, adviser or somebody similar is going to pitch these investments, and until that happens you probably wouldn't even know they exist. These people want a piece of your investment capital, and most likely haven't given your goals or risk appetite much thought. It's up to you to decide whether the product being offered fits your portfolio and investment strategy. If you can't decide, just say "no."
Indeed, Norway's regulators recently banned structured products from being offered to most individual investors because their "risks are not well understood." This move came after some Norwegian municipalities were burned in the subprime mortgage debacle.
2. Only about 10% of structured products are listed on exchanges. The rest exist in a dimly lit over-the-counter realm. That means you will not necessarily be able to follow the interim pricing of these products, although you could track the publicly traded components such as ETFs.
And there isn't a liquid aftermarket in case you want to -- or need to -- bail before the products mature. Some investment banks say they will buy back the products they created from investors, but you may have noticed that some of these banks run out of money occasionally. In our example above, J.P. Morgan Chase declares it "intends to offer to purchase the notes in the secondary market but is not required to do so."
One notable exception is the growing number of exchange-traded notes. These ETNs were introduced to establish access to markets that are not readily available to many investors, such as commodities and currencies. They are notes structured with distant maturities that allow for exchange trading, and some of them have built up a decent daily volume.
3. Structured notes introduce credit risk into investments that otherwise wouldn't have any. The vast majority of these products are notes that are backed by the issuing banks. If the bank goes belly-up, structured-note investors are left holding the bag. Ideally, you'd perform due diligence on the bank's credit rating before you put money into one of its structured notes.
4. Many structured products offer "principal protection." That is, the investor is guaranteed to get capital back with possibly some extra kicker if the linked index performs favorably. The J.P Morgan Chase example above isn't one of these, but many investors insist on this protection. It changes the risk factor from one of potential loss to one of tying up your money for a period without any recompense.
This kind of structured product plays into what many behavioral finance professors have been telling us: Some people hate to lose money more than they hate to not make money.
Structured products are ingenious, fascinating vehicles. They require careful thought on your end about whether you should take them for a spin, or kick the tires and walk away.
John Prestbo is editor and executive director of Dow Jones Indexes.
The required performance is specified in the offering documents for these products. For instance, one product may pay off if the Dow Jones Industrial Average exceeds a particular level by the maturity date, while another pays if the Dow falls below a certain level. It's all in how an investment bank structures the product -- which is another way of saying what the bankers think will sell.
Actually, the Dow examples are of the plain-vanilla variety. Many structured products nowadays are increasingly sophisticated, not to say complex, and are incorporating strategies as well as securities.
Consider, for example, a $2.2 million issue of "Buffered Return Enhanced Notes" that J.P. Morgan Chase & Co.issued last month.
This product essentially is a bet that the commercial and residential real estate markets will recover by April 10, 2010, when the notes mature. The index-linked assets in this product consist of a basket of three ETFs: iShares Dow Jones U.S. Real Estate Index Fund, Financial Select Sector SPDR Fund,
This basket -- in which the iShares real-estate fund accounts for 60% and the other two ETFs are 20% each -- was priced on April 2. J.P. Morgan Chase set this level (a total of $51.24 for the basket) at 100. If the basket price level is higher in two years, investors get their principal back plus two times the percentage gain of the basket.
This is the "enhanced" part of the structure. If the basket ends up at 112, the note would pay out $1,240 for each $1,000 invested, or a 24% total return. The upside potential return is capped at 42%, which means anything more than a 21% increase in the basket does nothing for the investor.
But what if the bottom falls out and the basket ends 30% lower at 70? The investor receives $850 for each $1,000 invested. That's only half of the basket's drop because the note offers protection against a decline of 15% -- the "buffered" part of the structure. If the basket fell to zero, the investor would still get $150 for each $1,000 face amount.
Structured products appeal to investors for a variety of reasons, not least of which is the usually relatively short wait to find out if they've won or lost. According to the Structured Products Association, $114 billion of these instruments were issued last year, up from $64 billion in 2006. So far, this year is on track to reach $120 billion, a 5% increase.
That's impressive growth during a time of turbulence in many markets and asset classes. Keith A. Styrcula, chairman and founder of the association, says one of the driving factors is a "profound shift in investor thinking -- that active management isn't worth the extra cost."
Individual investors take about 45% of structured products and 55% go to institutions, Mr. Styrcula says. "Only 5% to 10% of the investment advisers and brokers are familiar with structured products now. As more of them become so, we'll see growth in the number of individuals participating either directly or through certain mutual funds," he adds.
Rules and caveats
If you're considering a structured product, what should you be aware of?
1. Structured products are sold, not bought. The broker, adviser or somebody similar is going to pitch these investments, and until that happens you probably wouldn't even know they exist. These people want a piece of your investment capital, and most likely haven't given your goals or risk appetite much thought. It's up to you to decide whether the product being offered fits your portfolio and investment strategy. If you can't decide, just say "no."
Indeed, Norway's regulators recently banned structured products from being offered to most individual investors because their "risks are not well understood." This move came after some Norwegian municipalities were burned in the subprime mortgage debacle.
2. Only about 10% of structured products are listed on exchanges. The rest exist in a dimly lit over-the-counter realm. That means you will not necessarily be able to follow the interim pricing of these products, although you could track the publicly traded components such as ETFs.
And there isn't a liquid aftermarket in case you want to -- or need to -- bail before the products mature. Some investment banks say they will buy back the products they created from investors, but you may have noticed that some of these banks run out of money occasionally. In our example above, J.P. Morgan Chase declares it "intends to offer to purchase the notes in the secondary market but is not required to do so."
One notable exception is the growing number of exchange-traded notes. These ETNs were introduced to establish access to markets that are not readily available to many investors, such as commodities and currencies. They are notes structured with distant maturities that allow for exchange trading, and some of them have built up a decent daily volume.
3. Structured notes introduce credit risk into investments that otherwise wouldn't have any. The vast majority of these products are notes that are backed by the issuing banks. If the bank goes belly-up, structured-note investors are left holding the bag. Ideally, you'd perform due diligence on the bank's credit rating before you put money into one of its structured notes.
4. Many structured products offer "principal protection." That is, the investor is guaranteed to get capital back with possibly some extra kicker if the linked index performs favorably. The J.P Morgan Chase example above isn't one of these, but many investors insist on this protection. It changes the risk factor from one of potential loss to one of tying up your money for a period without any recompense.
This kind of structured product plays into what many behavioral finance professors have been telling us: Some people hate to lose money more than they hate to not make money.
Structured products are ingenious, fascinating vehicles. They require careful thought on your end about whether you should take them for a spin, or kick the tires and walk away.
John Prestbo is editor and executive director of Dow Jones Indexes.
Tuesday, May 20, 2008
Alice Yurke: Leveling the SP Playing Field
As growth in the European markets in particular continues, Alice Yurke on behalf of the Structured Products Association maps out the road ahead for Structured Products…
The last two years have seen unprecedented growth in the development and distribution of structured products in the United Kingdom, the United States and Europe.
Once exclusively the province of banks and securities firms marketing to institutional and ultra-high net worth individuals, the retail market for these products is developing globally at breakneck speed. A key to this rapid growth is continued marketplace innovation and positioning of structured products in both the retail and institutional arenas. However, the rewards of innovation and positioning are not without their legal and credit risks.
The most critical legal concerns in the development and distribution of structured products in the United States will continue to revolve around disclosure and suitability, particularly in the retail arena. These concerns heighten the need for diligence on the part of broker-dealers, in terms of both fully understanding their customers and highlighting the risks involved on a product-by-product basis. In-depth analysis and understanding of the products, followed by balanced explanation of the risks and rewards, will become increasingly more important as issuers offer complex products whose features may elusively appear to be only slightly different from those offered by a competitor.
For the full article, click here.
The last two years have seen unprecedented growth in the development and distribution of structured products in the United Kingdom, the United States and Europe.
Once exclusively the province of banks and securities firms marketing to institutional and ultra-high net worth individuals, the retail market for these products is developing globally at breakneck speed. A key to this rapid growth is continued marketplace innovation and positioning of structured products in both the retail and institutional arenas. However, the rewards of innovation and positioning are not without their legal and credit risks.
The most critical legal concerns in the development and distribution of structured products in the United States will continue to revolve around disclosure and suitability, particularly in the retail arena. These concerns heighten the need for diligence on the part of broker-dealers, in terms of both fully understanding their customers and highlighting the risks involved on a product-by-product basis. In-depth analysis and understanding of the products, followed by balanced explanation of the risks and rewards, will become increasingly more important as issuers offer complex products whose features may elusively appear to be only slightly different from those offered by a competitor.
For the full article, click here.
Structured Products Association Announces Winners of the 2008 First Annual LeadingEdge Awards for Investment Professionals
Five top investments advisors are experts in using structured products for asset allocation; consider the use of the investment class as a "competitive advantage"
NEW YORK, May 20 -- The Structured Products Association (SPA) today announced the five winners of the First Annual LeadingEdge Advisor Awards. The winners were chosen at the SPA-2008 Fifth Annual Conference at the Grand Hyatt Hotel in New York. Societe Generale Corporate & Investment Banking sponsored the awards presentation.
NEW YORK, May 20 -- The Structured Products Association (SPA) today announced the five winners of the First Annual LeadingEdge Advisor Awards. The winners were chosen at the SPA-2008 Fifth Annual Conference at the Grand Hyatt Hotel in New York. Societe Generale Corporate & Investment Banking sponsored the awards presentation.
The LeadingEdge awards are given to the top investment advisors, brokers and professionals in the Americas who have demonstrated superior results for clients in using investments known as "structured products" in managed portfolios.
"After 50 years, 'modern portfolio theory' can no longer be characterized as the cutting-edge," says Keith A. Styrcula, Chairman and Founder of the SPA. "Simple asset allocation is no longer the optimal solution. The LeadingEdge Awards are bestowed to advisors who expertly used structured products to dial out volatility in portfolios, to add 100 to 250 basis points in additional annual returns, to protect assets against losses, and to access alternative asset classes from around the world that are available exclusively through structured investments."
"For the last five years, structured products have been Wall Street's best kept, $120 billion secret," Styrcula added. "But the five winners of the LeadingEdge awards are among the elite 5% of their profession whose expertise in this investment class has given them a clear competitive advantage."
The LeadingEdge winners were rigorously judged on the effectiveness, creativity and sophistication of their use of structured products as a unique investment solution for client portfolios. A committee from the Structured Products Association collected nominations over a three-month period, and assessed each nominee using these criteria.
The five winners of the LeadingEdge awards are:
Thomas Balcom (Foldes Financial Management) is based in Miami, FL. Foldes has nearly half-a-billion in assets under management (AUMs) Tom's approach is to invest 7-10% of AUMs in structured products, using them as a complement to core investment strategies. http://www.foldesfm.com/
Steve Braverman (Harris myCFO Investment Advisory Services) is based in Fort Lee, NJ. Steve heads a group that advises 300 families with seven offices and 165+ employees. With over $20B in assets, his team's focus on structured products has been rapidly growing. http://www.harrismycfo.com/
SPA CHAIRMAN'S AWARD: J. Scott Miller (Blue Bell Private Wealth Management) is based in Blue Bell, PA. Scott and his team at Blue Bell PWM manage portfolios of structured products for their clients and as separately managed accounts (SMAs) for other RIAs. It is Blue Bell's belief that through the use of managed structured products portfolios, they are able to control risk, reduce portfolio volatility, while still providing compelling upside potential. Scott has over 36 years experience in the nvestment business and purchased his first structured product in 1993. http://www.bluebellpwm.com/
Tony Proctor (Proctor Financial) is based in Wellesley, MA. Tony's firm has been using structured products for over 5 years. His firm believes the investment class is an excellent tool for delivering on two distinct goals for his clients' portfolios: 1) to protect against realistic downside losses, while still capturing and usually exceeding possible upside returns; and 2) to give his firm's clients access to asset classes or areas of the world that would otherwise be difficult to capture. On average, Proctor Financial allocates over 20% of client portfolios to structured investments to achieve these dual goals. http://www.proctorfinancial.com/
Frederick S. Wright (Smith and Howard Wealth Management) is based in Atlanta, GA. Fred's team effectively uses structured products as a risk management tool, specifically to reduce equity exposure and excessive volatility in client portfolios. http://www.smithhowardwealth.com/
Raina Mathur of Societe Generale Corporate & Investment Banking, who presented the awards to the winners, stated: "Registered Investment Advisors (RIAs) are the fastest growing distributors in the structured products industry and they represent the thought-leaders who are bringing this investment class to the mainstream. In recognition of this trend, Societe Generale has created a platform dedicated specifically to the RIA community. Accordingly, it's an immense honor for Societe Generale to recognize these top-tier professionals as recipients of the SPA's First Annual LeadingEdge Awards."
The SPA will open up the nomination process for the 2009 Leading Edge Awards in November 2008. To learn more about the SPA and structured products, visit the SPA website at www.structuredproducts.org, and the SPA blogsite at www.structuredproducts.com.
Saturday, May 17, 2008
Friday, May 2, 2008
Barclays: $4bn New SPs in $225bn Commodities Products (Bloomberg News)
By Saijel Kishan
May 2, 2008
Commodity assets under management expanded by a record in the first quarter to $225 billion as prices for energy, metals and agriculture increased to all-time highs, Barclays Capital said.
Assets climbed by $28 billion, almost three times the gain in the same year-earlier period, the bank said in a report e-mailed late yesterday. Rising prices accounted for about half of the growth, it said. The figures exclude hedge funds' direct holdings in futures markets.
``The investment community as a whole is still underinvested in commodities,'' Kevin Norrish, analyst at Barclays Capital, the securities unit of London-based Barclays Plc, said by telephone.
Pension funds and other money mangers boosted holdings of commodities as the asset class outperformed stocks and bonds, and the dollar fell to a record low against the euro. Prices for oil, wheat and gold climbed to all-time highs this year.
The Astmax Commodity Index, the best-performing commodity index of those tracked by Bloomberg, climbed 14 percent in the first quarter, while the Standard & Poor's 500 Index of stocks declined 9.9 percent. U.S. Treasuries have returned investors 2.6 percent in the period, according to Merrill Lynch & Co. indexes.
Investments in funds tracking commodity indexes rose by $14 billion to $139 billion, while holdings in exchange-traded commodity products grew by almost $7 billion to $45.8 billion, Barclays said. . . . More than $4 billion was invested in so-called structured products linked to commodities, the bank said. Such products are tailor-made securities designed for clients when standardized contracts and indexes won't fulfill their needs, or when investors are restricted from using derivatives to gain access to a particular asset class.
For access to the full story on Bloomberg News, click here.
May 2, 2008
Commodity assets under management expanded by a record in the first quarter to $225 billion as prices for energy, metals and agriculture increased to all-time highs, Barclays Capital said.
Assets climbed by $28 billion, almost three times the gain in the same year-earlier period, the bank said in a report e-mailed late yesterday. Rising prices accounted for about half of the growth, it said. The figures exclude hedge funds' direct holdings in futures markets.
``The investment community as a whole is still underinvested in commodities,'' Kevin Norrish, analyst at Barclays Capital, the securities unit of London-based Barclays Plc, said by telephone.
Pension funds and other money mangers boosted holdings of commodities as the asset class outperformed stocks and bonds, and the dollar fell to a record low against the euro. Prices for oil, wheat and gold climbed to all-time highs this year.
The Astmax Commodity Index, the best-performing commodity index of those tracked by Bloomberg, climbed 14 percent in the first quarter, while the Standard & Poor's 500 Index of stocks declined 9.9 percent. U.S. Treasuries have returned investors 2.6 percent in the period, according to Merrill Lynch & Co. indexes.
Investments in funds tracking commodity indexes rose by $14 billion to $139 billion, while holdings in exchange-traded commodity products grew by almost $7 billion to $45.8 billion, Barclays said. . . . More than $4 billion was invested in so-called structured products linked to commodities, the bank said. Such products are tailor-made securities designed for clients when standardized contracts and indexes won't fulfill their needs, or when investors are restricted from using derivatives to gain access to a particular asset class.
For access to the full story on Bloomberg News, click here.
Thursday, May 1, 2008
Barclays' Philippe El-Asmar on ETNs (IndexUniverse.com)
Straight From The Source:
Written by Heather Bell
Tuesday, 29 April 2008 11:19
Index Universe (IU): Why did Barclays Capital create its family of ETNs?
Philippe El-Asmar (El-Asmar): We created the iPath family to complement the existing iShares ETFs that Barclays Global Investors were offering. They are meant to give access to more difficult-to-reach asset classes.
IU: How does a decision get made as to whether an index will be used to underlie an ETF or an ETN?
El-Asmar: It's a very close collaboration and partnership that we have between BGI and Barclays Capital, and we regularly meet to discuss the plans for the next three-to-six months, or the next year or possibly even longer-term plans. The first priority is to basically give investors choices and respond to the needs of clients. The primary driver for us in launching a product is not our agenda, but more the response to feedback we've collected from clients over time. We're pretty agnostic with regard to the choice between one instrument and the other. Often there is value in each of the instruments depending on what the investor really wants, and in the past, we have offered an ETN and an ETF tracking the same underlying index. Generally speaking, we collaboratively try to fill the gaps using ETNs as a means to access more difficult-to-reach markets and ETFs as the traditional vehicle.
IU: Beyond the collaboration with BGI, what is driving the expansion of the iPath ETN family?
El-Asmar: The primary driver here is providing the clients with what they want and giving them choices. We didn't try to launch hundreds of ETNs and just hope that some will succeed. We've always been very cautious about providing investment products that we think will see long-term demand from investors. Commodities, for example, are in everybody's mind as an established asset class, but four years ago. very few people had exposure to commodities. We're not saying when we launch a commodity ETN that right now is the right time to invest in commodities. What we're saying is if you decided to invest in commodities, this is the best way you can access the data class-a very simple, transparent, cost-efficient way, with the convenience of trading on an exchange.
IU: Barclays Bank was the first in the ETN space. Do you see a lot of new players coming into the field beyond the ones that are currently there now?
El-Asmar: Yes; we know of at least two other banks that are working very seriously on their exchange-traded note platforms. We've had, since we entered the market in 2006, about six or seven separate issuers create ETNs themselves as well.
IU: Are there high barriers to entry to the market? Barclays was kind of out there by itself for a while.
El-Asmar: I think it does take a lot of time and energy and effort to create the architecture around an exchanged-traded note program, and often the first is the most difficult to do. So yes, it does take time for other issuers to catch up, but relatively speaking, we were in the market uncontested for about a year, and that might have been a little bit longer than what we anticipated. Typically speaking, it would have taken maybe six months for the competition to copy us.
For the full interview on IndexUniverse.com, click here.
Written by Heather Bell
Tuesday, 29 April 2008 11:19
Index Universe (IU): Why did Barclays Capital create its family of ETNs?
Philippe El-Asmar (El-Asmar): We created the iPath family to complement the existing iShares ETFs that Barclays Global Investors were offering. They are meant to give access to more difficult-to-reach asset classes.
IU: How does a decision get made as to whether an index will be used to underlie an ETF or an ETN?
El-Asmar: It's a very close collaboration and partnership that we have between BGI and Barclays Capital, and we regularly meet to discuss the plans for the next three-to-six months, or the next year or possibly even longer-term plans. The first priority is to basically give investors choices and respond to the needs of clients. The primary driver for us in launching a product is not our agenda, but more the response to feedback we've collected from clients over time. We're pretty agnostic with regard to the choice between one instrument and the other. Often there is value in each of the instruments depending on what the investor really wants, and in the past, we have offered an ETN and an ETF tracking the same underlying index. Generally speaking, we collaboratively try to fill the gaps using ETNs as a means to access more difficult-to-reach markets and ETFs as the traditional vehicle.
IU: Beyond the collaboration with BGI, what is driving the expansion of the iPath ETN family?
El-Asmar: The primary driver here is providing the clients with what they want and giving them choices. We didn't try to launch hundreds of ETNs and just hope that some will succeed. We've always been very cautious about providing investment products that we think will see long-term demand from investors. Commodities, for example, are in everybody's mind as an established asset class, but four years ago. very few people had exposure to commodities. We're not saying when we launch a commodity ETN that right now is the right time to invest in commodities. What we're saying is if you decided to invest in commodities, this is the best way you can access the data class-a very simple, transparent, cost-efficient way, with the convenience of trading on an exchange.
IU: Barclays Bank was the first in the ETN space. Do you see a lot of new players coming into the field beyond the ones that are currently there now?
El-Asmar: Yes; we know of at least two other banks that are working very seriously on their exchange-traded note platforms. We've had, since we entered the market in 2006, about six or seven separate issuers create ETNs themselves as well.
IU: Are there high barriers to entry to the market? Barclays was kind of out there by itself for a while.
El-Asmar: I think it does take a lot of time and energy and effort to create the architecture around an exchanged-traded note program, and often the first is the most difficult to do. So yes, it does take time for other issuers to catch up, but relatively speaking, we were in the market uncontested for about a year, and that might have been a little bit longer than what we anticipated. Typically speaking, it would have taken maybe six months for the competition to copy us.
For the full interview on IndexUniverse.com, click here.
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