Source UK Services
Source UK Services Ltd., or simply Source, is a specialist British-based provider of exchange-traded funds and exchange-traded commodities. The first products of Source, 22 T-ETCs and 13 ETFs, became available in April 2009 on Deutsche Börse. Source was started by five of the world's largest equity trading houses – BofA Merrill Lynch, Goldman Sachs, J.P. Morgan, Morgan Stanley and Nomura. In 2014, Warburg Pincus, the large global Private Equity firm, purchased 51% and is now the sixth owner. As part of that deal, Lee Kranefuss, the innovator behind the iShares ETF line at Barclays and BlackRock, became Executive Chairman of Source.
Source has raised nearly US$20 billion in assets since its launch to date, becoming one of the fastest-growing ETF provider in Europe.
Source's product range consists of 53 equities, 31 commodities, 3 fixed income and 4 alternative products.
Legal and regulatory structure
The parent company, Source Holdings Limited, is a Cayman incorporated, Irish tax resident company. It has two subsidiaries – Source Investment Management Limited, an Irish UCITS Management Company and Source UK Services Limited, an FSA regulated company. "Source" is used to refer to group entities as a whole.Source Investment Management, responsible for the management of Source Markets plc, has been approved as a UCITS management company and is regulated by the Central Bank of Ireland.
Source UK is authorised by the Financial Conduct Authority.
Motivation and opportunities
Source executives claim there were several raisons d'être for Source at launch.Limited counterparty risk
With events such as the collapse of Lehman Brothers and near collapse of AIG in September 2008, credit risk was brought to the forefront of investors’ concerns. Source, which was launched in the midst of the recent financial crisis, responded to this by setting self-imposed guidelines on its exposure to its counterparties that exceed European UCITS regulatory requirements. It has capped exposure to derivative counterparts to a 4.5% which is well below the 10% limit set by UCITS III. Source's open architecture, multi-partner platform allows it further diversify counterparty exposure over the various participating banks. An independent asset manager is responsible for managing the assets adding a new level of investor protection. Furthermore, Source UK Services commodity products are secured by T-Bills, G-7 bonds and cash making them the most stable counterparty structure in the industry.Improved liquidity
Source aims to be a catalyst for liquidity in the ETF market and believes it is the most important factor in the take-up of ETFs in Europe. In the United States, daily on exchange trading volume on average exceeds $70 billion, which accounts for 10% of ETF Assets under management, whilst in Europe that figure is approximately $2 billion, which accounts for about 1% of AUM. To increase liquidity on its products and avoid fragmentation, Source limits the number of exchanges it lists its products on. Currently, Source products can be listed on the Deutsche Börse, London Stock Exchange and Swiss Stock Exchange.Better product performance
Source aims to bring innovation and efficiency to the ETF industry on all fronts whether it is structuring efficient ETFs, offering access to new asset classes or working with index providers to put forward more efficient products based on optimised indices. Source claims to obtain better performance through the use of derivatives which guarantees not only a very robust counterparty risk structure, but also a tighter index tracking. Source products are recognised in the industry for their very low tracking error.In many cases Source has worked with index providers in order to offer ETF investors that perform better than competitor products. Of these, the most notable is the partnership of Source with STOXX to create optimised sector indices. In July 2009, Source teamed up with STOXX, the index provider, to launch a range of optimised sector indices. These new indices are fundamentally different from the existing ones as three new filters applied in picking the underlying stocks which are liquidity, availability to borrow and concentration. The market response to the products was impressive, with Source gaining a large market share in a short period of time. Also, trading volumes on sector products jumped to €9.4bn shortly after the products became available representing almost a six-fold increase.
In commodities investing, Source recognised the importance of the shape of the underlying commodities futures curve in deriving efficiencies to the end-investor. As a result, Source launched Source Crude Oil Enhanced T-ETC which uses dynamic rolling rules in order to mitigate the effects of contango in the oil futures markets. This product tracks S&P GSCI Crude Oil Enhanced Total Return Index providing a significantly higher level of correlation to the price performance of spot WTI crude oil.
Recent partnerships
Other achievements and innovations
Source became the first European ETF provider to launch 18 innovative sector products that are built to benefit from diversification, liquidity and availability of stocks to borrow in the underlying indices. The underlying indices, the STOXX European 600 Optimised Supersector indices, were specifically created by STOXX and Source in July 2010. At the same time, Source also initiated a first large scale create-to-lend on ETFs in Europe. As a result, Source sector products turnover increased, this has also tightened bid-offer spreads lowering the cost of owning products benefiting all market participants. Since launch in July 2010, the Source Optimised Sector ETFs have increased the overall sector turnover by over 700% and continues to capture over 80% of the sector turnover.In June 2010, Eurex launched options on Source ETFs allowing investors to express their view on market. This helped the ETF options market to become more efficient. After the addition of options on Source ETFs, the market grew exponentially from €7 mn to €400 mn.
In January 2010, Source issued Source RDX ETF. It was another contribution of Source to the wider market. By using a new index which releases dividends when they are only paid, Source overcame the hurdles that investor face when investing on Russian stocks.
In June 2010, Source issued S&P VIX Futures Source ETF and became the first European ETF provider to offer investors exposure to volatility in an ETF form. The ETF tracks S&P 500 VIX Futures Index which is the most popular index for investors who wants exposure to volatility.
Recent product launches
On 11 April 2011, Source launched the EURO STOXX Optimised Banks ETF. The ETF tracks the EURO STOXX Optimised Banks Total Return index which has been optimised to reduce exposure to illiquid stocks.On 18 April 2011, Source launched three physically backed precious metals ETP – Source Physical Silver P-ETC, Source Physical Platinum P-ETC and Source Physical Palladium P-ETC.
Each product is secured by physical metal held in JPMorgan's London vaults and have a 0.39% annual fixed fee. They are listed on London Stock Exchange and trade in US Dollars.
On 19 April, Source teamed up with Nomura to launch the Nomura Voltage Mid-Term Source ETF. It is claimed that this new volatility product minimises the negative impact of contango of investing VIX futures by also investing in US treasuries when volatility is low.
Product list
| Equities |
| Consumer Discretionary Market Quartile ETF |
| Consumer Staples Market Quartile ETF |
| Cyclicals Market Quartile ETF |
| Defensives Market Quartile ETF |
| EURO STOXX 50® Distributing ETF |
| EURO STOXX 50® ETF |
| EURO STOXX® Select Dividend 30 ETF |
| EURO STOXX Optimised Banks Source ETF |
| European Autos Sector ETF |
| European Banks Sector ETF |
| European Basic Resources Sector ETF |
| European Chemicals Sector ETF |
| European Construction Sector ETF |
| European Financials Sector ETF |
| European Food & Bev Sector ETF |
| European Health Care Sector ETF |
| European Household Sector ETF |
| European Industrials Sector ETF |
| European Insurance Sector ETF |
| European Media Sector ETF |
| European Oil & Gas Sector ETF |
| European Retail Sector ETF |
| European Technology Sector ETF |
| European Telecoms Sector ETF |
| European Travel Sector ETF |
| European Utilities Sector ETF |
| FTSE® 100 ETF |
| FTSE® 250 ETF |
| MSCI Brazil ETF |
| MSCI China ETF |
| MSCI EMU Small Cap ETF |
| MSCI Emerging Markets ETF |
| MSCI Europe ETF |
| MSCI India ETF |
| MSCI Japan ETF |
| MSCI USA ETF |
| MSCI World ETF |
| Man GLG Europe Plus ETF |
| RDX ETF |
| Russell 2000® ETF |
| S&P 500 ETF |
| STOXX Europe 50® ETF |
| STOXX® Europe 600 ETF |
| STOXX® Europe Mid 200 ETF |
| STOXX® Europe Small 200 ETF |
| US Consumer Discretionary Sector ETF |
| US Consumer Staples Sector ETF |
| US Energy Sector ETF |
| US Financials Sector ETF |
| US Health Care Sector ETF |
| US Industrials Sector ETF |
| US Materials Sector ETF |
| US Technology Sector ETF |
| US Utilities Sector ETF |
| Commodities |
| Gold P-ETC |
| Silver P-ETC |
| Platinum P-ETC |
| Palladium P-ETC |
| Agriculture T-ETC |
| Aluminum T-ETC |
| Coffee T-ETC |
| Copper T-ETC |
| Corn T-ETC |
| Cotton T-ETC |
| Crude Oil Enhanced T-ETC |
| Crude Oil T-ETC |
| Gold T-ETC |
| Grains T-ETC |
| Industrial Metals T-ETC |
| Light Energy T-ETC |
| Livestock T-ETC |
| Natural Gas T-ETC |
| Nickel T-ETC |
| Non-Energy T-ETC |
| Petroleum T-ETC |
| Precious Metals T-ETC |
| S&P GSCI™ T-ETC |
| Silver T-ETC |
| Softs T-ETC |
| Soybeans T-ETC |
| Sugar T-ETC |
| Wheat T-ETC |
| Zinc T-ETC |
| Fixed Income |
| Pimco Euro Enhanced Short Maturity ETF |
| Pimco US Dollar Enhanced Short Maturity ETF |
| Pimco European Advantage Government Bond Index ETF |
| Alternatives |
| BofAML Hedge Fund Factor Dollar ETF |
| BofAML Hedge Fund Factor Euro ETF |
| S&P 500 VIX Futures ETF |
| Nomura Voltage Mid-Term Source ETF |
Key partners
Source UK Services' partners are some of the largest participants in the ETP market: BofA Merrill Lynch, Credit Suisse, Goldman Sachs, J.P. Morgan, Morgan Stanley, Nomura and PIMCO along with Nyenburgh, Jane Street, All Options, Baader Bank, Banca IMI, BNP, Commerzank, DekaBank, Euro Invest Bank, Exane, Flow Traders, HSBC, IMC, Knight Capital, LaBranche, Newedge, Optiver, RBS, SG Securities and UniCredit.| Authorized participants |
| BofA Merrill Lynch |
| Goldman Sachs |
| Credit Suisse |
| Jane Street |
| J.P. Morgan |
| Morgan Stanley |
| Nomura |
| Market makers |
| Nyenburgh |
| Baader Bank |
| Banca IMI |
| BNP |
| Commerzbank |
| DekaBank |
| Euro Invest Bank |
| Exane |
| Flow Traders |
| HSBC |
| IMC |
| Knight Capital |
| LaBranche |
| Newedge |
| Optiver |
| RBS |
| SG Securities |
| UniCredit |
Awards
- Highlights of industry recognition of Source's efforts:
- * "Securitization and Structured Finance Deal of the Year". Source ETC program. IFLR European Awards 2010
- * "Technology Innovation", Structured Products Europe Awards 2009
- * "Best ETF provider of the Year", Structured Products Europe Awards 2010
- * "Best Global Equity ETF Manager 2010", ETFExpress
- * "Best Europe ETF Manager 2011", ETFExpress
- * "Best Commodity ETF Manager 2011", ETFExpress
- * "Best North America Equity ETF Manager 2011", ETFExpress