London Stock Exchange - New ETF Listings 2013

The 2013 ETF Landscape on the London Stock Exchange: A Shift Towards Specialization

The Exchange Traded Fund (ETF) market on the London Stock Exchange (LSE) in 2013 experienced a noticeable evolution. Moving beyond basic broad-market trackers, the year was characterized by a shift toward highly specialized and strategic investment tools. Investors increasingly demanded precision in their fixed-income portfolios and sought out new avenues for yield, which drove issuers to launch innovative wrappers and complex new methodologies.

Introduction of New Issuers and the "AlphaDEX" Approach

While established providers like Vanguard, SPDR, and iShares continued to broaden their product lines, 2013 witnessed a significant entry into the UK market by a new issuer: First Trust.

• First Trust's AlphaDEX Lineup: In April 2013, First Trust introduced its proprietary "AlphaDEX" methodology to the LSE. They launched several funds, including the First Trust United Kingdom AlphaDEX UCITS ETF and the First Trust Emerging Markets AlphaDEX UCITS ETF.
• A Rules-Based Idea: This introduction represented a brand new investment idea for the exchange. Instead of relying on traditional market-capitalization weighting, AlphaDEX offered an enhanced, rules-based alternative that systematically selected stocks based on specific growth and value factors.

Dominant Investment Themes

The 2013 ETF listings were heavily shaped by two primary investment themes, largely driven by the macroeconomic environment of the time.

1. The Pursuit of Yield
In a low-interest-rate environment, there was a massive appetite for income-generating products, prompting issuers to flood the market with dividend-focused strategies.

• SPDR introduced its dividend-focused suite, launching products like the SPDR S&P Global Dividend Aristocrats UCITS ETF and the Pan Asia Dividend Aristocrats UCITS ETF in May 2013.
• Vanguard also bolstered this income-hunting theme by debuting its FTSE All-World High Dividend Yield UCITS ETF.

2. Granular Duration Management
Fixed-income investors sought surgical tools to closely manage their interest rate risk.

• iShares launched an entire suite of "$ Ultrashort Bond" and "£ Ultrashort Bond" ETFs.
• SPDR introduced highly targeted fixed-income trackers, such as the 0-3 Year Euro Corporate Bond and 0-5 Year U.S. High Yield Bond ETFs, allowing investors to isolate specific segments of the yield curve.

Brand New Product Ideas in ETF Format

Alongside the quantitative equity strategies, 2013 welcomed several unique ETF wrappers that granted European investors access to previously difficult-to-reach or complex markets.

• Master Limited Partnerships (MLPs): Invesco brought a brand new product format to the LSE by launching the Morningstar US Energy Infrastructure MLP UCITS ETF in both distributing and accumulating formats. This innovative wrapper allowed European investors to access the high-yield, tax-advantaged US energy infrastructure space within a tightly regulated UCITS structure.
• Interest Rate Hedging: As market concerns over rising interest rates intensified, issuers engineered sophisticated hedging tools. A prime example of this was the iShares $ Corp Bond Interest Rate Hedged UCITS ETF. This brand new product idea allowed investors to maintain their exposure to corporate bond credit spreads while actively mitigating the risk of rising underlying interest rates.

Snapshot of Key 2013 Innovators