The closure of the Lee Kranefuss-driven Source Euro Stoxx 50 ETF (ESTX | F-70) means that ETF provider Source, which is well established in Europe, no longer has an ETF listed in the U.S. The shutdown of its only U.S.-listed fund leaves a large question mark hanging over the firm’s future in this country.
Kranefuss, formerly the head of iShares, was the public face and leader of Source’s U.S. push. After leaving iShares in the aftermath of its acquisition by BlackRock, Kranefuss joined venture capital firm Warburg Pincus, which later bought a majority stake in Source.
Despite a media blitz, ESTX didn’t gain much traction in its roughly seven months of trading, closing out February with less than $20 million in assets under management, well before the fund’s impending April 10 closure was announced.
Of course, ESTX had quite a row to hoe. It tracked the exact same index as the $4.9 billion SPDR Euro Stoxx 40 ETF (FEZ | A-77), and even though it was nearly 50 percent cheaper, it wasn’t going to be able to compete with FEZ in terms of liquidity right out of the gate or brand recognition.
The Future Of Source In The US
Source launched ESTX last September via Exchange Traded Concepts, not through its own “exemptive relief.” However, in January, the firm filed its own 40-APP form with the SEC requesting wide-ranging relief for self-indexed, fund-of-funds, long/short and 130/30 ETFs.
But a recent Source amendment-withdrawal filing with the Securities and Exchange Commission said that Source no longer intended to launch the only other fund it had put into registration, a currency-hedged version of ESTX. That fund was planned under Source’s own exemptive relief, and not that of Exchange Traded Concepts.
Also, recently, there had been word that Source has laid off large numbers of staff in the U.S., raising the question of what its plans are. Is it simply regrouping, rethinking its approach and planning its next U.S.-listed fund? Or is it withdrawing from the U.S. marketplace for good?
Only the filings and time will tell.
iShares Plans Hedged ETFs
A recent flurry of filings from iShares for 11 currency-hedged funds that will invest in existing iShares ETFs indicates the world’s largest ETF provider has a laserlike focus on the rapidly expanding currency-hedged ETF space.
iShares currently trails firms like WisdomTree and Deutsche Bank in terms of the number of currency-hedged ETFs it sponsors and the assets invested in them. Nevertheless, the firm’s currency-hedged lineup is nothing to sneeze at; it has some $5.5 billion invested in the five currency-hedged equity funds that it does offer.
iShares is in a unique position not shared by either of its two competitors in the currency-hedged space in that it has a wide array of existing traditional cap-weighted regional and single-country equity ETFs that are already up and running. That means its new currency-hedged versions of those funds can invest in the pre-existing unhedged ETFs and simply add the hedging strategy.
In other words, these funds are likely to have instant liquidity based on the pre-existing and well-established securities despite its slow start. That means that the world’s largest ETF company is likely to become a major competitor in the currency-hedged arena.
The 11 proposed currency-hedged funds, including three regional ETFs and eight single-country ETFs, and their corresponding cap-weighted iShares ETFs, are as follows:
- iShares Currency Hedged MSCI ACWI ETF / iShares MSCI ACWI ETF (ACWI | A-97)
- iShares Currency Hedged MSCI ACWI ex U.S. ETF / iShares MSCI ACWI ex U.S. ETF (ACWX | B-97)
- iShares Currency Hedged MSCI EAFE Small-Cap ETF / iShares MSCI EAFE Small-Cap ETF (SCZ | B-93)
- iShares Currency Hedged MSCI United Kingdom ETF / iShares MSCI United Kingdom ETF (EWU | B-92)
- iShares Currency Hedged MSCI Australia ETF / iShares MSCI Australia ETF (EWA | B-100)
- iShares Currency Hedged MSCI Switzerland ETF / iShares MSCI Switzerland Capped ETF (EWL | B-96)
- iShares Currency Hedged MSCI Spain ETF / iShares MSCI Spain Capped ETF (EWP | B-95)
- iShares Currency Hedged MSCI South Korea ETF / iShares MSCI South Korea Capped ETF (EWY | B-96)
- iShares Currency Hedged MSCI Mexico ETF / iShares MSCI Mexico Capped ETF (EWW | B-95)
- iShares Currency Hedged MSCI Italy ETF / iShares MSCI Italy Capped ETF (EWI | C-92)
- iShares Currency Hedged MSCI Canada ETF / iShares MSCI Canada ETF (EWC | A-94)
The filings did not include tickers or expense ratios.