The London Stock Exchange has announced that it is to introduce a ‘Request For Quote’ (RFQ) trading platform for exchange-traded products, available from December 2016. The RFQ functionality will offer on-exchange benefits and cleared execution for larger size trades, allowing greater flexibility and protection for both institutional customers and responding market makers. The platform will run alongside and complement the existing order book structure providing a mechanism whereby traders can privately negotiate and carry out large trades with market makers outside of the normal order book.

Index provider FTSE Russell has announced constituent changes to the FTSE 100 Index, the flagship reference for large-cap blue-chip stocks listed on the London Stock Exchange. The latest quarterly review will see only one member of the index being replaced, UK housebuilder Berkeley Group in favour of precious metals miner Polymetal International, but will still trigger re-balancing activity in exchange-traded funds that track the index, such as the giant iShares Core FTSE 100 UCITS ETF (ISF). It will also make such ETFs even less UK-oriented.

John Redwood, Charles Stanley’s Chief Global Strategist, looks at the rising popularity of exchange-traded funds.

By the end of June this year, exchange-traded funds (ETFs) had swollen to more than $3 trillion worth of investments. In recent years more individuals and institutional investors have built portfolios around ETFs. More institutions have used ETFs to gain exposure rapidly to a given asset class or geographical area. More have introduced some ETFs into portfolios where they lack the expertise on the individual shares or commodities or properties they might otherwise buy.

The research team at London-based ETF provider Source favours European equities over those of the US and holds a maximum overweight position in the Eurozone in its multi-asset model portfolio. Although the team is neutral on equities in general, it believes the Eurozone economy is still accelerating and valuations look attractive. Andras Vig, Director in the Source Research team, commented: “While there are pockets of risk in Europe – mostly in banks – we believe the prevailing negative sentiment is not justified.”

In a recent white paper, exchange-traded fund provider UBS found that ESG (environmental, social and governance) funds were just as good as conventional funds for the same risk. Also called ethical, sustainable or socially responsible, assets under management in ESG-compliant ETFs have risen nearly 45% to $3.4bn in the last 18 months, according to data from BlackRock, parent of iShares. And the trend looks like it will continue. However, a shortage of ETFs is holding back wider adoption, with portfolio managers frustrated by the lack of products on offer. According to Camilla Ritchie, portfolio manager at 7IM: “There are not enough SRI/ESG ETFs for all the different asset classes.”

European robo-advisor Scalable Capital entered the UK market earlier this month, opening its portfolio management business with portfolios constructed exclusively from ETFs. It has over 1,200 invested clients, with investment amounts often substantially above the minimum threshold of £10,000. The move into the UK marks a key step in the firm’s ambitions to expand throughout Europe, having already established operations in Germany and Austria. Rebecca Hampson, associate editor at ETF Strategy talks to Adam French, founder and managing director of Scalable Capital about why it has launched in the UK, why ETFs and whether being a robo-advisor is financially viable.

Manchester-headquartered AJ Bell, a provider of online investment platforms and stockbroker services, has introduced a passives-only managed portfolio service (MPS) aimed at financial advisers. The portfolios include significant allocations to exchange-traded funds (ETFs), with products from BlackRock’s iShares and SSGA’s SPDR ETFs featuring prominently. Billy Mackay, AJ Bell Marketing Director, commented: “Our focus has been to build a managed portfolio service that is easy to understand for both advisers and their clients, fits into the existing business processes of advisers and offers their clients a competitive deal.”

Exchange-traded funds are increasingly being used by investors to positions themselves for, and react to, major global events. It comes as the range of strategies available increases, catering to investor demand for tactical solutions. These were the latest findings in BMO Global Asset Management’s semi-annual ETF Outlook Report, which highlighted key trends in the ETF industry over the first half of this year. Mark Raes, Head of Product, BMO Global Asset Management, commented: “Investors are recognising the value of using ETFs both as long term holdings and as a trading tool to manage market uncertainty and take advantage of short term market movements.”

Global flows into emerging market ETFs have surged as investors tire of the European and Japanese central bank trade and the capital market “sweet spot” of the post-Brexit world continues. According to Bloomberg data, US-listed emerging market ETFs have taken in about $17bn and Europe-based emerging market ETFs have gathered $12bn this year to 3 August. The money was spread across 54 different European-based ETFs, in addition to 46 US-based funds. “This trend is deep and wide, it’s not just a few institutions getting excited,” Eric Balchunas, senior ETF analyst at Bloomberg, told ETF Strategy.

Five new exchange-traded funds/exchange-traded products were listed on the London Stock Exchange (LSE) during July, bringing the total number of new ETF/ETP listings for 2016 to 97. Total on-exchange value traded for ETFs and other ETPs in July 2016 was £37.1bn, up by 77% compared to July 2015, while total on-exchange value traded for ETFs and ETPs, year to date, is £216.7bn, up by 42% compared to the same period last year.