Product Panel: Credit Suisse returns to ETFs

Scott Longley

a large building with many windows

There is more joy in heaven over one sinner who repenteth so maybe Credit Suisse can hold out hopes that its

volte face

regarding the European ETF market will be welcomed by all and sundry.

To find out, we turn to ETF Stream’s Product Panel, who run the rule over the Swiss giant’s re-entry having previously sold up its European ETF operation to BlackRock in 2013.

Will this second stab at ETFs – launching an initial three funds (the CSIF (IE) MSCI USA Blue UCITS ETF, CSIF (IE) MSCI USA ESG Leaders Blue UCITS ETF and the CSIF (IE) MSCI World ESG Leaders Blue) – be more successful than the first?

What the company says:

Michel Degen, head of Switzerland and EMEA at Credit Suisse AM, said: “We continually analyse the market, new trends and client needs to provide appropriate solutions for our customers.

“The strategic importance of ETFs will further increase in the future as digital sales platforms gain greater significance.”

What the panel says:

Nicolas Rabener, managing director of FactorResearch

Credit Suisse follows Goldman Sachs' playbook of converting existing products into ETFs, which is one of the very few economical options of entering the saturated ETF market.

The business is unlikely to generate attractive margins given low fees, but Credit Suisse already owns the core infrastructure given an index platform with €100bn-plus assets under management.

The three fund launches are not particularly innovative but fulfil existing investors’ requirements as well as minimum AUM hurdles of prospective investors.

Given the domination of a few large ETF providers and industry exits like from BMO, investors will likely appreciate Credit Suisse's re-entry to the ETF universe.

Ben Seager-Scott, head of multi-asset at Tilney

What I find interesting here is not the products themselves – though clearly the focus on ESG as a key theme is relevant as to why they have been chosen – but the apparent business rationale, which actually mirrors much of the discussion last year around active ETFs in Europe and the benefits of the traditional fund structure versus the ETF structure.

In Europe, there is simply not the huge tax efficiency benefit that exists in the US, so what will be the driver? One of the answers is around the rise of digital wealth, and the idea that digital investors want timely pricing information, and will not settle for the ‘yesterday’s news’ pricing that you get with traditional fund structures.

This is a clear example of the direction of travel and is probably a smart strategic move for Credit Suisse, converting existing, on-trend funds into a more modern structure rather than simply trying to compete in the extremely competitive ‘high volume, low margin’ space that they exited a number of years ago.

Peter Sleep, senior investment manager at 7IM

The return of Credit Suisse to the ETF market shows a few things. First it shows the low barriers to entry to the ETF business. This is the second firm this month to enter, or re-enter, the ETF business. The low barriers to entry allow firms to apparently switch on or switch off their commitment to ETFs.

Credit Suisse sold a CHF16bn ETF business in 2013 as part of its “strategic divestment plans” and is now re-entering it as the firm “analyses the market, new trends and client needs. The strategic importance of ETFs will further increase in the future as digital sales platforms gain greater significance”.

The word “strategic” was used when Credit Suisse sold its ETF business and when the firm re-entered it. Maybe the translation from Schweizerdeutsch or just PR-speak, but a clear and consistent strategy is difficult to see.

I am unconvinced by the firm’s press releases statement about the trend to digital investing. It has been around for decades. Firms like Hargreaves Lansdown and Fidelity Funds Network and their US, Australasian and EU equivalents have been important routes to market for fund houses for a long time and they can equally as well handle funds and ETFs.

I have heard of buyer’s remorse, but here perhaps what we really have is seller’s remorse as a reason for the re-entry.

Interestingly the CSAM website says this, perhaps reinforcing my point on strategy. “Credit Suisse AM offers index funds rather than ETFs as we believe they offer clear advantages.

“Compared to ETFs, however, index funds display two core strengths: they physically replicate their reference indices, the investor receives almost the same performance that is replicated by the index; they are charged in a transparent manner.”

I am not sure I agree with this either but welcome back Credit Suisse to the ETF world. I shall look forward to more products from you.

Rumi Mahmood, ETF analyst at Nutmeg

Given BlackRock’s success following its acquisition of Credit Suisse’s former ETF arm, the business could be likened to ‘the one that got away’.

Credit Suisse is now entering a highly competitive marketplace, where the rules of the game have changed.

At the time of the sale in 2013, ETF assets under management in Europe amounted to $395bn, and since then this has almost tripled to $979bn, according to data from ETFGI.

Why has Credit Suisse re-entered the European ETF market?

Credit Suisse at the time accounted for circa 4.5% of European ETF assets. It will be significantly harder for them to compete from the current starting point than where they were, given headwinds such as price compression and ‘first-to-market’ advantages its peers have capitalised on, particularly in the ESG space.

With total cost of ownership in mind, Credit Suisse’s funds will have to prove their value proposition, given that the core equity space is competitively priced with the dominant fund providers benefiting from AUM-driven liquidity moats.


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