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Indices and Benchmarking - July 19, 2010

ETFs: this study has confirmed the trends that we have seen over the last year - an interview with Valérie Baudson

In this month's interview, Valérie Baudson, Managing Director, Amundi ETF, discusses the findings of the EDHEC European ETF Survey 2010, recent trends in the ETF market, the contribution of ETFs to dynamic asset allocation and a series of European seminars on ETFs in which EDHEC-Risk Institute participated.

Valérie Baudson

The EDHEC European ETF Survey 2010, which was produced as part of the "Core-Satellite and ETF Investment" research chair sponsored by Amundi ETF, reveals an overall market for ETFs that is maturing but in which opportunities for growth remain. Does this correspond to Amundi ETF's view of the market?

Valérie Baudson: This study has confirmed the trends that we have seen over the last year regarding the development of the ETF market. We agree that the European market for ETFs is maturing even if compared to the US market we are still in early stages of the development. Apart from the very high level of satisfaction towards ETFs, the study also highlighted the need for new products. This confirms our strategy which consists of regularly expanding our product range to meet our clients’ needs.

The survey also points to increasing adoption of more advanced ways of trading and using ETFs, such as OTC trading and securities lending. Do you think these advances will have any consequences for ETF providers?

Valérie Baudson: The important use of OTC trading is specific to the European market which is mainly driven by institutional investors rather than retail. Among our client base, more than two-thirds of the trades are executed OTC. OTC trading is particularly adapted for institutional investors who want to trade important amounts. In that case, orders can be executed either intraday or at the Net Asset Value. This has no direct effect on ETF providers aside from the fact that our clients are more satisfied as they can access our products at a competitive cost. That’s why we work very closely with our market makers in order to offer highly competitive bid/ask spreads. For example, on NYSE Euronext Paris for our ETF on the Eurostoxx 50, we were able to provide a bid/ask spread of around 4.63 basis point since the beginning of the year, when the competitors’ bid/offer spreads vary from 5.37 to 107.33 on the same underlying index. [NYSE Euronext monthly details – end of June 2010]

Concerning the sophisticated ways of using ETFs, the development of short (or inverse) ETFs in terms of product offering and integration in clients portfolio strategies, shows that investors are maturing as they go beyond the classical use of ETFs, i.e. taking a long position in a specific market. However, when it comes to shorting or lending ETF units, we believe that there is room for further education to help investors make the most of ETFs as the demand is still limited.

According to the survey, the potential contribution of ETFs to dynamic asset allocation is not yet fully exploited. What do you think are the reasons for this?

Valérie Baudson: For sure the benefits of using ETFs in dynamic asset allocation are not fully known and exploited but this is something that evolves along with the maturing of the market. We believe that the role of EDHEC Risk's academic research is key as it provides investors with various illustrations of how they can efficiently introduce ETFs in their asset allocation strategy. Moreover the development of the product offering widens the possibilities of using ETFs and we are part of this growing trend as we are committed to providing investors with innovative products to meet their needs.

Are there any other results of the survey that you felt were particularly noteworthy?

Valérie Baudson: The survey revealed that ETF users are becoming more selective as they are looking more often at the tracking error of the products which is an important criterion for assessing the quality of an ETF. In addition, clients are discovering the benefits of using ETFs that are managed through swap-based replication especially when it comes to replicating broad indices. For sure, this comforts us in our choice of favoring swap-based replication.

You have just completed the Amundi ETF Tour 2010, a series of European seminars at which EDHEC-Risk Institute participated, and you also participated in the presentation of the EDHEC European ETF Survey 2010 in Paris on June 9. What feedback have you had from prospects and clients during this series of seminars?

Valérie Baudson: Our first European roadshow took place in 12 European cities and started just after the launch of the cross-listing of our products across Europe. We met nearly 300 investors together with CA Cheuvreux and EDHEC-Risk in Germany, Italy, Switzerland and Benelux. We received very positive feedback from investors who had the opportunity to discover our capabilities in more detail. They were very interested in EDHEC-Risk’s presentation on the dynamic core-satellite approach which we believe enhanced their understanding of the benefits linked to including ETFs in their asset allocation. No doubt that this first trial was a great success and we will certainly organise another series of roadshows in the coming months.

About Valérie Baudson

Valérie Baudson has been Managing Director, Exchange Traded Funds at Amundi since December 2007.

From 2004 to 2007, Valérie was Marketing Director and Member of the European Management Committee of Crédit Agricole Cheuvreux, the European Stockbroking subsidiary of Crédit Agricole Group. From 2001 to 2004, she held the position of Corporate Secretary and was a Member of the Management Committee. Valérie joined Crédit Agricole Cheuvreux in 1999 as Project Manager for the Senior Management team.

Valérie started her career at Banque Indosuez where she managed international audit missions from 1995 to1999.

Valérie is a graduate of HEC (Haute Ecole de Commerce, Paris) where she majored in Finance.