Merrill Lynch and Merrill Edge have launched today (May 9) five new portfolios incorporating environmental, social and governance (ESG) factors in response to growing demand for investments with the potential to produce positive societal outcomes without sacrificing financial returns.
Designed by the Global Wealth and Investment Management (GWIM) Chief Investment Office (CIO), the new CIO Core Impact Portfolios incorporate the CIO's disciplined investment process, portfolio construction views, portfolio management and oversight routines. They consist primarily of exchange-traded funds (ETFs) and require a minimum investment of $5,000. The five portfolios model investor profiles ranging from conservative to aggressive. These offerings expand upon an existing array of impact offerings on both the Merrill Lynch and Merrill Edge platforms.
Impact investing in the US has gathered momentum over the last two years. According to the Forum for Sustainable and Responsible Investment, US$8.72tr was invested in impact-related investments at the start of 2016, an increase of 33% since 2014. Interest is particularly strong among younger investors and women, studies have found. Millennials have the highest proportion of assets deployed in ESG-oriented strategies and also have the greatest interest in adding exposure to these strategies; approximately 90% either engage in impact investing or want to. This group alone could drive US$15-US$20tr of inflows over the next two to three decades, roughly doubling the size of the US equity market.
UK broker launches CFDs on ETFs
UK Financial Conduct Authority (FCA) regulated FX, contracts for difference (CFDs) and spread betting broker ActivTrades has introduced CFDs on exchange traded funds (ETFs) to the existing range of asset classes available to trade. This launch marks another entry into the ETFs market by a UK-based broker which is seeking to offer low-cost diversification and arbitrage options for investors.
ActivTrades customers will be able to benefit from fast execution every time they trade as the CFDs on ETFs are offered on the MetaTrader 5 platform, available on desktop and mobile. ActivTrades are offering a competitive leverage of up to 1:20, meaning traders are required to pay only a fraction of the overall value of the transaction. The option of hedging has also been made available to ActivTrades' client base.
ActivTrades said the launch is a natural progression for the business, adding it will enable its clients to invest directly in ETFs with favorable terms compared to those offered on the underlying markets. These terms include much lower margin requirements, trade sizes, and tick values as well as no financing costs, exchange fees or minimum commissions.
Surging ETF allocations in fixed-income portfolios broadens adoption among Asian institutions
Investment in ETFs surged last year in Asian institutional fixed-income portfolios, where allocations to ETFs grew to 17.1% of total fixed-income assets, from just 6.6% in 2016, according to the Greenwich Associates 2018 Asian ETF Survey.
This increase is part of a broader expansion in ETF use by Asian institutions, which are using the versatility of ETFs to apply them to a growing list of asset classes and portfolio applications. According to the report, Asian institutions are integrating ETFs into their portfolios as a standard tool for obtaining beta exposures in their allocations in both active and passive strategies. This steady expansion into new applications is stoking demand. In both equities and fixed income, 45% of study participants currently investing in ETFs expect to increase allocations to the funds in the coming year. Meanwhile, fully one-quarter of all ETF non-users say they are likely to start investing in the funds in the next 12 months.
The recent growth in fixed-income ETF allocations has occurred at the expense of individual bonds, which made up 58.6% of fixed-income assets among study participants in 2016 but only about 50% in 2017. Across all asset classes, institutions are turning to ETFs for a diverse range of investment exposures, including international exposures (among study participants, 54% are using ETFs for international diversification, up sharply from about one-third in 2016); multi-asset exposure (over the last three years, study participants have tripled their use of ETFs in multi-asset funds. The median allocation has grown from just 5% in 2015 to 15% in 2017); and factor exposures (nearly half - 47%, of study participants now invest in non-market-cap-weighted ETFs, up from 44% in 2016).
ETFs provide valuable versatility in a newly volatile market
US institutional investors preparing their investment portfolios for the return of volatility and the shift to a rising interest-rate environment are stepping up their use of exchange-traded funds, according to another Greenwich Associates report, the Annual US ETF Study.
Driving this expansion is ETF versatility, according to the report. ETFs are being adopted in portfolios alongside, and in some cases in place of, individual stocks and bonds, mutual funds and derivatives as a source of primary beta exposures for use in a wide variety of active and passive investment strategies. Institutions are making greater use of ETFs in strategic portfolio functions. They are using ETFs to obtain investment exposures in "core" portfolio allocations, and as building blocks in top-down strategies that create alpha through asset allocation, as opposed to security selection. They are also employing ETFs to guard portfolios against volatility-a task growing numbers of institutions are addressing with smart beta ETFs. (The share of study participants investing in non-market-cap-weighted/smart beta ETFs increased to 44% in 2017 from 37% in 2016.)
Meanwhile, institutions continue relying on ETFs as a liquid, fast and relatively low-cost tool in a wide range of tactical tasks, such as managing cash flows and making tactical changes to their portfolios. About a third of current ETF users in the study plan to increase allocations to the funds in the coming year, and significant shares of non-users say they are likely to start investing in ETFs in the next 12 months. Institutions are planning the biggest allocation increases in fixed income, where they are using the funds to enhance liquidity and otherwise prepare for a new era of "quantitative tightening."
BMO AM debuts technology and new media trends play
BMO Asset Management Inc. (BMO AM) has launched a Canadian industry-first ETF that offers an investing strategy capitalizing on technology innovation and new media trends in the communications services sector.
BMO Global Communications Index ETF (Ticker: COMM) gives investors access to leading companies in the communications equipment, gaming software, media and publishing services, telecommunications and web-based data sectors. Some of the holdings in the fund include Apple, Netflix, Facebook, Alphabet (Google), The Walt Disney Company and Time Warner.
The new ETF has been listed on the Toronto Stock Exchange. BMO AM ETF business now has 74 ETF strategies in Canada and has nearly 32% share of the market, according to Bloomberg data.