September 15, 2010 6:36 pm

New fund replicates the FTSE 100 for less

Private investors can now buy a FTSE 100 tracker fund that holds all the shares in the index and charges just 0.33 per cent a year – making it cheapest FTSE 100 tracker to use “full replication” – following the launch of a new range of exchange traded funds (ETFs) from Credit Suisse.

A total of 45 new Credit Suisse funds have been admitted to trading on the London Stock Exchange, taking the total number of London-listed ETFs past the 300 mark, and making the Swiss bank the 11th issuer to list ETFs in London. It has also listed 13 of its new range on Borsa Italiana’s ETFPlus market, building on its existing range of products in Milan.

Most of the new ETFs tracking developed market and indices – such as the FTSE 100, S&P 500 and Nikkei 225 – will use full replication or optimised sampling, which involves holding all or most of the shares in the index, but can result in tracking error. But all of the emerging market ETFs – with the exception of the MSCI Emerging Markets index tracker – will use index swaps, which require a counterparty bank to deliver the exact performance of an index. Credit Suisse will act as the counterparty for its swap-based ETFs, and is the first provider in the UK to offer both full replication and “synthetic” approaches.

Dan Draper, global head of ETFs at Credit Suisse, said: “We see potential for rapid growth in Europe, similar to that seen in the US over the past decade.”

Credit Suisse’s FTSE 100 ETF carries an annual charge of 0.22 per cent, giving it a total expense ratio (TER) of 0.33 per cent – just undercutting the 0.35 per cent charged by the full-replication FTSE 100 ETF from HSBC. iShares full-replication FTSE 100 tracker charges 0.4 per cent. Deutsche Bank’s db-x trackers range still includes the cheapest London-listed FTSE 100 ETF, which has a total expense ratio (TER) of 0.3 per cent, but it uses an index swap issued by the German bank.

Among the other new offerings are swap-based ETFs tracking equity indices in Europe, North America, Brazil, Russia, India and China (the ‘BRIC countries’) and other emerging markets. These will disclose the value of their holdings every day, to improve transparency for investors, and have a daily swap reset, to limit counterparty risk to intraday price movements.

According to the London Stock Exchange, trading in ETFs has continued to rise during 2010. Between January and August there were an average 16,710 trades worth £443m each day – a year-on-year increase of 47.4 per cent.

Pietro Poletto, Head of Exchange Traded Products at London Stock Exchange Group, said: “Together, London Stock Exchange Group’s UK and Italian markets compose the largest ETF exchange in Europe by volume.”

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