Industry Updates

ETF Wrap: A US winner enters Europe

The arrival of cash cows, T+1 costs and the launch of spot bitcoin ETFs in the US made headlines

Jamie Gordon

Within months of Cathie Wood’s ARK ETF entering Europe, ETF Stream revealed Pacer ETFs will launch a UCITS iteration of its flagship cash cows range as soon as mid-February

The products have a unique approach of focusing on high free cash flow yield, which is calculated by dividing a company’s cash flow by its enterprise value. 

This fundamentals-based range of four ETFs has driven much of Pacer’s growth in recent years, with the firm seeing its assets under management (AUM) spike from $10bn to $35bn within two years. 

Pacer ETFs president Sean O’Hara said although demand exists for cash cows in Europe, the market is “disjointed” and his team will have to think carefully about its distribution plans.

Meanwhile, he noted there is “vibrant” demand for the UCITS structure in the US as well as Latin American markets including Mexico and Brazil. 

T+1 creation inefficiencies 

Elsewhere, Flow Traders is calling for a same day creation model to be brought in after warning inefficiencies in the T+1 creation process means investors are bearing costs up to 4.5 basis points due to overnight interest rates – a dynamic which favours issuers and their custodians. 

Issuers or custodians that receive funds for creation but do not use them to buy the underlying basket of securities can benefit from overnight rates while authorised participants incur a cost.

This is especially true for global funds where T+1 creation is required to synchronise with secondary market transactions, leading to overnight long positions for ETF issuers.

The ETF midas touch 

Finally, much as the ETF structure proved a boon for gold, the lead-up to the first spot bitcoin ETF approvals in the US was a blessing for crypto assets.

In 2023, flows into European crypto ETPs more than doubled year-on-year, with a total of $2.3bn of net new assets.

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