Understanding Global ETF Aggregation

ETF Investments

Millions of individuals, thousands of asset managers, and thousands of asset owners, such as pension funds, invest in ETFs as part of their portfolios. And ETFs can invest in virtually every liquid market on the planet.

Diversify Portfolios

ETFs give investors access to a huge and growing variety of asset classes, markets and strategies, opening up new dimensions of diversification for investors large and small alike.

ETF Data

There are over 8,000 ETFs worldwide, and many more listings since they can have multiple listings on multiple exchanges. They can own some of the world’s thousands of exchange-listed futures, 65,000 equities, millions of bond issues, and other assets, all of which can be denominated in dozens of currencies. Unlike mutual funds priced only once a day, ETF pricing is a moving target with intraday pricing required. All of this places a premium on timely, complete, sensibly structured, accurate and clean market pricing data gathered from a myriad of exchanges (and sometimes other trading venues), index providers and other sources.

The growing breadth and granularity of data demands platforms, frameworks and solutions dedicated to the fast-moving ETF market, rather than legacy approaches designed for slower moving areas of the investment world where trading decisions can be made monthly, quarterly or even annually.

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Investment Strategies

ETF assets are still dominated by long-only, passive index tracking strategies following broad and well-known benchmarks. But there is also a smorgasbord of variety for those who want it. There are now ETFs pinpointing all sorts of countries, sub-sectors and niche industries from Vietnam to Argentina, from Artificial Intelligence to dozens of different digital currencies, and from vegan/plant-based food to solar energy or NATO defence suppliers.

Additionally, ETFs can be used to trade particular styles or factors such as growth, value, quality or momentum, or varying combinations thereof. And ETFs can also profit from falling markets by going short: there are pure short ETFs and others that have a mix of long and short positions like a hedge fund. ETFs are even being used for staking cryptocurrencies to generate income. By their nature, ETFs should be amongst the first to benefit from innovation in liquid markets.

ETF Reference Data

ETF data is a Big Data problem, which is unwieldy for some players who are not equipped with the right resources, support and tools. Growing volumes and complexity of ETF data, including millions of indices from over 200 index data providers, demand dedicated solutions designed expressly for ETFs.

Reference data needs to be near real-time, clean, accurate and fit for purpose. It also needs to be turned into a user-friendly format with industry-standard identifiers so that end users can work with different vendors and hit the ground running. Index data specifically needs to include open, close, proforma, and rebalances, amongst other items, as standard. ETF data needs to add a growing number of tags and flags such as ESG ratings, crypto asset flags or vendor codes. Users need to be able to track an audit trail of data for compliance, regulatory reporting, trading and performance attribution.

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Investment strategies

ETF assets are still dominated by long only, passive index tracking strategies following broad and well known benchmarks. But there is also a smorgasbord of variety for those who want it. There are now ETFs pinpointing all sorts of countries, sub-sectors and niche industries from Vietnam to Argentina, from Artificial Intelligence to dozens of different digital currencies, and from vegan/plant based food to solar energy or NATO defence suppliers.

ETF reference data

Reference data needs to be near real time, clean, accurate and fit for purpose. It also needs to be turned into a user friendly format with industry standard identifiers so that end users can work with different vendors and hit the ground running. Index data specifically needs to include open, close, proforma, and rebalances, amongst other items, as standard. ETF data needs to add a growing number of tags and flags such as ESG ratings, crypto asset flags or vendor codes. Users need to be able to track an audit trail of data for compliance, regulatory reporting, trading and performance attribution.

Operational Functions

ETF operational models have historically been fragmented and disparate, but are increasingly adopting models summed up by acronyms such as STP (Straight Through Processing), LPO (Lean Process Optimisation), RPA (Robotic Process Automation), and using SaaS (Software as a Service).

Regulatory Functions

ETFs need to comply with a wide range of financial, securities, tax, and other regulations. Examples include European Market Infrastructure Regulation (EMIR) in the EU, and Foreign Account Tax Compliance Act (FATCA), which is a US regulation that can be extraterritorial in scope.

Marketing Functions

Marketing can be done in house by ETF issuers, or it may be left to distributors. Social media literature, podcasts, and videos promoting ETFs need to pay careful attention to regulation and compliance in the relevant jurisdictions.

Outsourcing ETF Functions

Most ETF issuers will outsource to varying degrees, in areas such as settlement, custody, securities services, fund accounting, proxy voting, valuation, and security lending. Even when ETF issuers do some of these things under a common top level corporate umbrella, there could be several corporate sub-entities carrying out different functions.