Source (ETP / ETF provider)

Source Holdings Ltd., or simply Source, is a specialist European-based provider of Exchange Traded Products (ETPs), including Exchange Traded Funds (ETFs) and Exchange Traded Commodities (ETCs). The company was founded in 2008 by Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley and is headquartered inside the City of London, on 88 Wood Street.

History

Source launched its first product offering on the 20th April 2009, although the 3 founders are reported to have started working on the project in early 2008 . This first launch consisted of a listing of 35 ETPs on the Deutsche Börse (Xetra), of which 22 were T-ETCs (Source's trademark name for ETCs) and 13 were ETFs.

Motivation / Opportunities

Source entered the European ETP market to address various factors, including the following:

• Improving liquidity. In the United States, daily on exchange trading volume on average exceeds $90 billion, which accounts for 17 % of ETF Assets under management (AUM), whilst in Europe that figure is approximately $2 billion, which accounts for less than 2% of AUM. Furthermore, in Europe ETPs are generally listed on multiple exchanges, whereas in the US they tend to be listed on a single exchange. As these products are not fungible, trading volumes are fragmented even further, hence distorting liquidity.
• Tightening credit risk. With events such as the collapse of Lehman Brothers in September 2008, credit risk was brought to the forefront of investors’ concerns. Source has addressed this issue by setting self-imposed guidelines on its exposure to its counterparties that exceed European UCITS regulatory requirements, and also by diversifying this exposure over the various participating banks. Furthermore, Source commodity products are the only ones in the industry to be secured exclusively by T-Bills, G-7 bonds and cash.
• Growth opportunities. The early stage in the lifecycle that the industry was at when the project got underway meant that there were good opportunities for growth. Although in 2008, equity indices such as the MSCI World were down around 42%, ETPs assets worldwide remained relatively stable, with net European inflows of around €47 billion in 2008.

Products

Source ETFs

Source ETFs enable an investor to gain exposure to a broad range of equity indices. They achieve their target performance by investing in liquid equities and using total return swaps to minimize any tracking error. As a result, the swap counterparties (Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley) provide the target performance of the index to the fund. The Source ETF structure has a fundamental advantage relative to a number of ETFs in the market as it caps exposure below regulatory requirements and also transacts with multiple swap counterparties, thus diversifying the risk to any single counterparty.

Source T-ETCs

Source T-ETCs enable an investor to gain exposure to commodities without needing to trade futures, take delivery of physical commodities or incur significant credit risk. Source T-ETCs are secured by US Treasury Bills and cash and are linked to the S&P GSCI™ family of indices which include broad indices, sub-indices and individual commodity indices such as gold, crude oil or sugar

See also

• Passive management

External links

• Source
• Bank of America Merrill Lynch
• Goldman Sachs
• Morgan Stanley