Kranefuss Returns To US Market With New ETF

September 16, 2014

The ‘father of ETFs’ is helping Source enter the U.S. market.

Europe’s fourth-largest ETF issuer, Source, is gearing up for its debut in the U.S. market with the launch of the Source Euro STOXX 50 ETF (ESTX), which is expected to list on the NYSE Arca on Sept. 23. Industry veteran Lee Kranefuss is behind the move.

Kranefuss is well known in the U.S. market, having established a reputation as the "father of ETFs” due to his role in building iShares into the world’s largest ETF issuer. After stepping down from that role following iShares’ sale to BlackRock, he joined global private equity group Warburg Pincus in 2012 with the goal of finding new ETF opportunities globally.

That mission led to Warburg Pincus’ acquisition of a majority stake in Source, the London-based ETF provider. Now, Kranefuss is looking to bring Source’s quickly growing presence in Europe to the U.S., and expand it globally, by offering ETFs he says are “next generation” investment solutions. Source manages more than $19 billion in assets globally.

ESTX will invest in 50 of the largest market cap stocks from 12 Eurozone countries, including Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The fund, which will come with a 0.16 percent expense ratio, certainly isn’t the only ETF in the U.S. to tap into the European equity universe.

In fact, ESTX will go head to head against the SPDR Euro STOXX 50 (FEZ | A-54), for example, which has been around since 2002. The fund has $5.3 billion in assets. FEZ is one of three funds in this large-cap segment, according to Analytics. There are also various Europe total market funds available, such as the $9 billion iShares MSCI EMU ETF (EZU | A-60), which invests in large- and mid-cap equities from countries that use the euro.

What sets ESTX apart, Kranefuss says, is the provider behind it—one that he says is completely independent and investor-focused.

Following are the key things to know about Source’s planned footprint in the U.S., according to Kranefuss. How does ESTX compare with other funds like FEZ, or iShares’ Europe ETF (IEV | B-96)?

Kranefuss: The Euro Stoxx 50 index is the standard investment and trading index used by Europeans. It’s a great first entry point for Source. We are providing American investors—and global investors—the same tool that Europeans use.

Most European products in the U.S. are not benchmarked to an index that European investors would use. They like to use local versions of foreign benchmarks for proxies. But Source will offer the standard indexes investors in Europe would use.


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