Algo-Chain has partnered with Leverage Shares to offer discretionary fund managers (DFMs) the ability to run model portfolios within the exchange-traded products (ETP) structure for more efficient distribution, ETF Stream can reveal.
The ETPs wrap the core components of an investor’s model portfolio which is built using either Algo-Chain’s infrastructure or their own existing exposure.
The model portfolio ETPs will use ETFs, funds, stocks and “conceivably” even investment trusts as building blocks. Algo-Chain’s algorithms can be used to perform mean variance optimisation while building the portfolios and trading signals to actively manage them once they have launched.
Allan Lane (pictured), co-founder and CEO of Algo-Chain, told ETF Stream the ETP structure will improve managers’ operational efficiency and offer a pay-as-you-go alternative to open-ended investment companies (OEICs), which DFMs often set up to avoid the shortcomings of offering model portfolio families on platforms.
“We are trying to help the distribution equation,” Lane continued. “One of the challenges of running model portfolios on the UK platform market is firms have to set up on multiple platforms. You find some portfolios can be missing on some of platforms, a problem that platforms do not rush to fix.
“Because we were DFMs and not advisers, when we were managing money on Transact and elsewhere, we never got to see portfolio performance on the platforms.”
Offering models in listed format makes them accessible on adviser and retail platforms across Europe while making replication and performance tracking easier.
Lane added listing costs are the “baseline” of the ETPs’ price alongside the assets a client starts with. There is also “efficiency of scale”, with the cost per ETP falling for larger model portfolio suites.
The white-labelling process will mean the ETPs can launch within three months and includes public relations, marketing and distribution services, Algo-Chain said.
On the decision to opt for the ETP wrapper for the new service, Lane said the UCITS ETF “is machinery which does not really add much to the end investor experience” and would require his firm spending around £150,000 to set up a management company in Dublin.
Overall, just as ETFs are used within model portfolios, investment trusts and even other ETFs, Algo-Chain’s new offering is another case of wrapped strategies being used as a tool for efficient asset allocation and distribution.