Edward Guinness, CEO of Guinness Asset Management, has said he is unconcerned about Europe's daily transparency rules for ETFs following the firm's entrance into the market.
Guinness AM marked its entry into the European ETF market in June with the takeover of HANetf’s iClima sustainable energy ETF, switching it from passive to active.
With the active ETFs driving the growth of the overall market in 2024, Guinness AM’s entry marks an exciting addition to the relatively undeveloped area in the nascent European concentrated active ETF market.
This is a relatively nascent area of the active ETF market as the lack of concentrated ETFs in Europe has been tied to the transparency requirements that come with the UCITS structure.
CLMA mirrors the investment philosophy, strategy and holdings of the $843m Guinness Sustainable Energy fund, available to European investors since launching in 2007.
Actively managed, the Guinness Sustainable Energy UCITS ETF (CLMA) holds 33 equally weighted stocks and will mark the first actively managed sustainable energy ETF in Europe.
Guinness AM already offers a suite of products in the US under the name SmartETFs, offering the Sustainable Energy II ETF (SOLR) – also actively managed – and aims to capture companies that are poised to benefit from the shift to sustainable energy.
First active sustainable energy ETF in Europe
Guinness AM’s entry into Europe will mark the first active sustainable energy ETF, with all 22 strategies available on the European market currently passive, with iShares Global Clean Energy UCITS ETF (INRG) housing the most assets at $2.2bn.
Speaking to ETF Stream, Guinness (pictured) critiqued an index approach to sustainable energy ETFs, stating the index construction may work initially, but could become outdated over time.
“It is harder for it to evolve and to react to changes in the industry and to changes in how the world works.”
Alongside an active approach, Guinness AM’s ETF will be equally weighted, helping to avoid some of the emotional attachment that fund managers have to a specific position over time.
He added: “Being equally weighted is particularly exciting right now when you have seen such a concentration of performance in a handful of stocks. Having the risk diversity is very attractive from an investor perspective.”
‘Dipping our toes in’
While Guinness AM has launched a suite of ETFs in the US, Guinness said the firm is first testing the waters of the European ETF market by launching one strategy initially.
This – Guinness elaborated – is because it is difficult to immediately determine what type of investor will be purchasing the ETF.
“The first [new challenge] is identifying the key investors. In the ETF market, you don’t have the same ability to see who your holders are. So, we are going to have to work a lot harder to see who is engaging with our funds.”
“That explains why we are dipping our toes in rather than going in with ten funds on day one.”
He added structural drivers are a certain bet to accelerate ETF growth, with real time pricing and the “instantaneous nature of the interaction” helping to drive ETF growth versus other fund structures.
“There is a chance ETFs become the dominant technology used by investors over time.”
Transparency requirements
Having a concentrated active ETF that will have its holdings disclosed daily is not a concern for Guinness.
“If someone wants to copy our moves, they are welcome to. Active ETFs have daily disclosure of holdings and this has become an accepted industry norm. Our existing funds disclose their holdings on a monthly basis in arrears and are invested in liquid stocks that make switches of holdings relatively straightforward."
"If an investor wanted to copy our portfolios they could technically do so but in arrears. This would be highly unethical and we note that this has not become a feature of the industry in the US."
More to come?
Guinness said the company expects to launch more ETFs over the coming years but added “we do not have any [ETFs] sitting on the runway ready to go".
Guinness AM currently offers 23 mutual funds, which span equity income, sustainable, growth, multi-asset and fixed income, and its path of turning the sustainable energy mutual fund into an ETF could likely be done for other products in its range.
