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Candriam's Van de Maele: Self-indexing too complex from regulatory standpoint


Koen van de Maele of Candriam

Koen van de Maele of Candriam

Koen Van de Maele, global head of investment solutions at Candriam, has said external index providers still remain the best choice when it comes to benchmarking ETF products, rather than self-indexing, despite the firm designing the benchmark methodology.

Speaking to Investment Week, Van de Maele (pictured) highlighted a number of issues with self-indexing, including the strict regulations that come with it.

Over the past year, there has been an increasing trend towards self-indexing ETF vehicles in Europe, with J.P. Morgan Asset Management and Franklin Templeton both launching products that track their own indices.

Increasing number of ETF providers look to self-indexing to cut costs

“Self-indexing is complicated from a regulatory point of view,” Van de Maele commented. “To have Candriam as the index provider, you would need very strict Chinese walls so it seemed to us easier to partner with an independent provider.”

When Candriam brought its sustainable ETF suite to Europe under the IndexIQ brand in June 2017, the firm selected Solactive as its index provider. Candriam designed its own methodology and benchmarks but they are licensed by Solactive.

Van de Maele said this was due to Solactive being one of the most competitive providers in terms of cost and also innovation.

He added the index provider industry was ripe for disruption, with large players such as MSCI and S&P charging “millions” for doing very little.

Solactive: More competition will cut out ‘hidden’ turnover costs by index providers

“If you take the long-term view, price is a long-term element so we did not want to choose an expensive index provider, especially when we designed the index.

“The classic index providers such as MSCI are very well paid for a task which is not complicated,” he continued.

“There needs to be increased competition in the index provider space because there are very few players who tend to charge high fees, especially with the market-cap weighted indices.”

Future launches

In terms of future ETF launches, the global investment solutions head said the firm is looking to expand its range into US equity and world equity, while on the fixed income side it is planning on unveiling a US corporate bond vehicle in the near future.

Candriam currently offers five products in Europe: the Factors Sustainable Europe Equity, EMU Equity, Japan Equity, Corporate Euro Bond and Sovereign Euro Bond UCITS ETFs, all which have ESG and smart-beta overlays.

“We are seeing evolving demand for ETFs in wealth management and private banking,” he said. “In the retail space, there is still small demand because there is an education issue.

“I am not optimistic that our smart-beta products will be adopted by retail clients because it is technical but it will become a retail story if the performance is strong.”

However, one area where Van de Maele said the firm would be avoiding launching ETF products was in the emerging markets space due to its inefficient nature on both the equity and fixed income sides.

“We are not in a hurry to offer passive solutions [in EMs] as our active funds substantially outperform the respective benchmarks,” he added.



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