Short & Leveraged BOOST ETPs gain allure as Swiss Franc roils FX, CFD and spread bet firms
• Recent turmoil of FX, spread bet and CFD firms, most recently brought about by the Swiss Franc volatility last week brings into question over-the-counter leveraged trading
• Extreme volatility in Swiss Franc underscores many of the concerns highlighted in recent iMarkServ and Indxx CFD & spread betting study
• The recently published independent report into CFD & spread betting suggested that users of leveraged products were concerned by the finances of CFD & spread betting providers and prefer a product which traded on a recognised exchange
• BOOST, a WisdomTree company and Europe’s award winning specialist in S&L ETPs,believes S&L ETPs have significant benefits compared to other forms of leveraged trading - BOOST ETPs are fully collateralised exchange traded products, where investors cannot lose more than their initial investment
London, 23 January 2015: WisdomTree Europe, an exchange traded fund (“ETF”) and exchange traded product (“ETP”) sponsor, and specialist in short and leverage (S&L) ETPs through the BOOST ETP product range, hit record assets under management (AUM) of $182 million last week, just as spread betting and CFD firms hit troubles on the back of the Swiss National Bank’s (SNB) move to remove the Swiss Franc’s 1.20 fix to the Euro. Over the past month since 15 December 2014, the Euro has fallen 7.45% against the USD and 3.8 % versus GBP. Last Thursday’s unprecedented move by the SNB resulted in reports of the CHF rising by more than 30% initially versus the Euro. Currently the Euro is down 18% versus CHF.
This unexpected sharp rise in CHF caused many investors’ FX positions to be closed out, while some spread bet providers are at risk of insolvency through either trading losses or client’s not being able to meet margin calls to cover their losses. It is widely believed that users of spread bets and CFDs can leverage their FX positions upto more than 50x. By comparison, BOOST ETPs offer a factor of daily leverage ranging from 1 to 5X; and as this leverage is inside the product, so you never can lose more than your investment in the product. Last week’s actions highlighted the strengths of short and leveraged ETFs and ETPs in this type of market move.
Hector McNeil, Co-CEO of WisdomTree Europe had this to say:
“We believe that when trading leveraged instruments, investors’ interests are best served through a listed product versus an OTC product. Through an ETP, clients get a transparent, liquid exposure with counterparty protections whereby they cannot lose more than their original investment. The recent volatility in the Swiss Franc and the resultant losses investors experienced in the CFD and spread betting world, plus the counterparty exposure the investor is exposed to against the CFD and/or spread betting provider, highlights the strengths of the ETP product in contrast.”
Nik Bienkowski, Co-CEO of WisdomTree Europe also commented:
“One of the main reasons we launched short and leveraged Boost ETPs in December 2012 was because investors were telling us they wanted a robust alternative to CFDs and Spread Betting. As a result, over the past 12 months BOOST ETP’s AUM increased 296% to $182m (as at 16.1.15) and monthly exchange trading volumes increased by approximately 600% to $350m (to 31.12.14). Recently volatility in the markets has further highlighted the benefits of S&L ETPs.”
BOOST recently commissioned iMarkServ and Indxx an independent research house, to conduct an in-depth piece of market research into the contracts for difference (“CFDs”) and spread betting markets in the UK. The survey considered three main themes: the insights and habits of CFD and spread betting users; their attitudes towards risks and returns; and finally the areas where they think CFDs and spread betting need to be improved.
The survey demonstrates that investors would prefer an alternative financial instrument such as short and leverage ETPs for CFD and spread betting investors. They already have many of the features that investors feel are lacking in CFDs and spread bets, as well as addressing many of the regulatory, counterparty risk and other concerns that CFD and spread bet users have in relation to their current trading arrangements.
The main findings of the research are set out below.
Respondents’ attitudes to risks and returns:
• When considering provider risks, 40% had concerns regarding the finances of providers. Respondents also cited liquidity, client money risks and poor spreads as concerns
• Most respondents (86%) are aware that on average, investors tend to lose money when trading spread bets and CFDs
• 40% of respondents are un-aware that spread betting and CFD providers operate hedged and unhedged books. However, 71% were unsure whether their provider operated this way.
In comparison, ETPs are generally collateralised and/or physically replicated while ETP issuers do not hold open positions against their clients. For example in the event of a BOOST ETP counterparty default, the collateral would be liquidated and the proceeds paid to ETP holders.
Areas respondents said needed improvement are as follows:
• 100% said they would rather trade on a regulated market; the over-the-counter nature of CFD and spread betting appears to be unsatisfactory for investors
• 95% said they would prefer to trade with multiple market makers on Exchange
• Where trading on a short or leveraged basis, 86% of respondents would prefer to use a product where they cannot lose more than their original investment
• Trading without the risk of margin calls or the risk of being ‘knocked out’ of the market in a severe fall, were both highly desired features (77% in each case)
Based on these factors, short and leveraged ETPs seem to be an attractive alternative. CFD and spread bet investors are already used to trading ETFs, and investments with some, but not excessive, leverage may suit them well, as does the ability to go short.
About WisdomTree Europe Ltd.
WisdomTree Investments, Inc., through its subsidiaries in the U.S. and Europe, including WisdomTree Europe Ltd. based in London, is an exchange-traded fund (“ETF”) and exchange-traded product (“ETP”) sponsor and asset manager. WisdomTree offers products covering equities, fixed income, currencies, commodities and alternative strategies. Through WisdomTree Europe Ltd, it sponsors WisdomTree UCITS ETFs and BOOST short and leverage ETPs. WisdomTree currently has approximately $40.5 billion in assets under management globally.
For more information, please visit www.wisdomtree.com.
WisdomTree® is the marketing name for WisdomTree Investments, Inc. and its subsidiaries worldwide.
BOOST ETPs help expand the investment horizons of investors and allow them to execute a wide variety of strategies which include:
• Leverage the daily returns of an investment for the same capital as a non-leveraged trade
• Hedge existing positions in one simple trade
• Use a long or short strategy to take advantage of any short term rises or falls in the market, especially in a sideways trending market
• Pair trading to take advantage of undervalued assets
• Shorting the market efficiently and cheaply without having to arrange and finance complex stock borrowing positions
Similar to Exchange Traded Funds (ETFs), BOOST ETPs are liquid, accessible and simple. BOOST ETPs can be created and redeemed on a continuous basis by market makers, matching the tremendous liquidity of the underlying markets and can be traded by investors on a regulated exchange in the same way as any equity. BOOST ETPs provide accurate and transparent leveraged and short exposure to recognised benchmarks in a single trade. In addition, BOOST leveraged and short ETPs require no borrowing of stock or funds to gain the relevant exposure. BOOST ETPs are simply priced off transparent indices published by world class index providers.
BOOST ETPs are backed by robust risk management where (i) depending on the credit rating of BOOST’s counterparties, the mix of sovereign bonds held in the posted collateral will increase, and (ii) no cash or collateral will be delivered by BOOST to a counterparty unless BOOST has received payment first.
BOOST ETP's key features include:
• Independence - BOOST is independent from any investment bank, swap provider, market maker, trustee or custodian
• Best of breed – BOOST’s founders have over 25 years of experience in the ETP market. With this experience, plus the wealth of experience provided by BOOST’s world class service providers, investors are able to enjoy efficient products with liquidity, strong counterparty risk management and relatively low costs
• Transparency – BOOST discloses all fees, collateral holdings and details on its website each day
• Innovative and nimble - BOOST aims to be a leader in innovation, as evidenced by the ETPs issued, and the product development and market research behind the products
• Focused and specialised - BOOST's strategy differs from the existing ETP issuers by not focusing on being everything to everyone
• Educational - BOOST focuses on providing all the educational and thought leadership tools needed by investors
This communication has been provided by WisdomTree Europe Ltd which is an appointed representative of Mirabella Financial Services LLP which is authorised and regulated by the Financial Conduct Authority.
The products discussed in this document are issued by BOOST Issuer PLC (the “Issuer”) under a Prospectus approved by the Central Bank of Ireland as having been drawn up in accordance with the Directive 2003/71/EC. The Prospectus has been passported from Ireland into the United Kingdom and is available on the websites of the Central Bank of Ireland and the Issuer. Please read the Prospectus before you invest in any Exchange Traded Products (“ETPs”). Neither the Issuer nor BOOST ETP is acting for you in any way in relation to the investment to which this communication relates, or providing investment advice to you. The information is not an offer to buy or sell or solicitation of an offer to buy or sell any security or investment. You are advised to seek your own independent legal, investment and tax or other advice as you see fit.
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. An investment in ETPs is dependent on the performance of the underlying index, less costs, but it is not expected to match that performance precisely. ETPs involve numerous risks including among others, general market risks relating to the relevant underlying index, credit risks on the provider of index swaps utilised in the ETP, exchange rate risks, interest rate risks, inflationary risks, liquidity risks and legal and regulatory risks.
ETPs offering daily leveraged or daily short exposures (“Leveraged ETPs”) are products which feature specific risks that prospective investors should understand before investing in them. Higher volatility of the underlying indices and holding periods longer than a day may have an adverse impact on the performance of Leveraged ETPs. As such, Leveraged ETPs are intended for financially sophisticated investors who wish to take a short term view on the underlying indices. As a consequence, BOOST ETP is not promoting or marketing BOOST ETPs to Retail Clients. Investors should refer to the section entitled "Risk Factors" and “Economic Overview of the ETP Securities” in the Prospectus for further details of these and other risks associated with an investment in Leveraged ETPs and consult their financial advisors as needed. This marketing information is intended for professional clients & sophisticated investors (as defined in the glossary of the FCA Handbook) only.
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