Presented by HANetf.
Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investment. I am Margareta Hricova and joining me today is Hector McNeill, co-CEO and co-founder of HANetf and Deborah Fuhr.
Welcome to the show.
Hector McNeil: Nice to see you.
Deborah Fuhr: Thank you.
Margareta Hricova: So Hector, HANetf is a unique issuer in Europe. Can you explain why?
Hector McNeil: Yeah. Well, HAN is the first European, full services, white label ETF provider. Essentially, what that means is we don’t have any of the IP content ourselves. You know, we work with differentiated asset managers who basically don’t want to invest in all the spares and shovels to issue ETFs. You know, we do that on their behalf. So we do all the legal compliance, product development, distribution and marketing. And actually the biggest USP we have is we can have a fund out in 10 weeks, which ultimately, you know, is what everybody’s after. They are after that speed to market and cutting down the barriers to entry.
Deborah Fuhr: And HAN has grown from 1.1bn to 3bn now, and you’ve listed your first ETF, EMQQ, the Emerging Markets Internet and Ecommerce UCITS ETF just three years ago, making you one of the fastest growing European ETF firms. What is the secret to your success?
Hector McNeil: I think the secret to our success is pretty much down to the fact that we’ve got 20+ years of experience. My business partner, Nik Bienkowski, you know, we’ve worked together now for 18 years, you know, so it’s almost like a marriage. We’ve issued over 560 ETFs and ETPs in that time and generated about $40 billion in assets. But I think we very much focus on a differentiated offering. We’ve got the broadest range of thematic ETFs of any issuer in Europe now. You know in crypto, we’ve got the biggest bitcoin physical product in the world, and we’ve started down the journey on active funds. So we’re very much the differentiated, added-value issuer. The analogy I always use is, you know iShares is Wallmart and we’re the Whole Foods.
Margareta Hricova: That’s great, and as you mentioned, you have one of the most extensive thematic ranges with 20 such ETFs listed in Europe. Can you give us an overview of this offering?
Hector McNeil: What’s driving a lot of it actually is US issuers who are looking to replicate their offering in Europe. Debbie, you mentioned EMQQ. Kevin T. Carter brought that over to Europe. You know he was our first client. Last year, it was the best performing EM fund in the world, but he wants to have both the UCITS and the 40 Act requirement. And we’ve done that pretty much across the board, and it seems that thematics have been the real wheelhouse for that.
So we’ve done similar things with the general E-commerce ETF called IBUY. We’ve done it with a space ETF, which I think is the best ticker that’s ever been, called YODA. But we’ve also done products like cleaner living and various other products. So I think what it’s given us is the ability to take existing IP and branding at the ticker level and the firm level and bring those to Europe.
Following that, we’ve had other people that have had good ideas and current ideas and want to come to market quickly, so something like medical cannabis, you know, we issued the first medical cannabis ETF in Europe, CBDX. That took a huge amount of work with all the regulators because obviously there’s big legal implications of that sort of product. Just having that expertize of being able to take products and structures to Europe in a fast fashion has really played well for our business.
Every one of our ETFs gets a monthly report so our clients produce a macro and a micro story, almost like a running commentary on what’s going on inside the ETF and what’s affecting it, giving the investors all the tools and the stories they need to then go and sell them to their clients as well. So that’s where I think it’s quite exciting.
Deborah Fuhr: And similar to thematics, you have a pretty exciting range of crypto ETPs, including BTCE, which was the most traded ETP on the Deutsche Boerse in the first six months of this year. Can you explain why that offering has been so successful?
Hector McNeil: If you’d have said to me, would it be that successful when we launched it, you know, I’ll probably be lying if I said it would be. I think there’s an element of ‘the right product at the right time.’ The amazing thing for me is we weren’t the first to market. There was other providers such as CoinShares and 21Shares before us. But I think being first on Germany and I think being a German-domiciled issuer, having the ability to redeem and a favorable tax status in Germany because of that facility, I think is quite powerful. It’s the first bitcoin ETP in the world to have a full carbon offset as well. You mentioned it’s the most traded on the Deutsche Boerse, which is obviously the biggest ETF exchange in Europe, but that’s in context of being well-traded in the DAX, the EURO STOXX 50, the S&P 500 are all gold. And it’s been so liquid that product, that Eurex decided, when they issued their bitcoin Futures, that they would actually price it off BTCE, which is the first time in the world I’ve ever seen an ETF have a future priced off it. It’s over 1.5 billion dollars now. It trades at average about $40-50 million a day. It’s a pretty amazing product all in all.
Margareta Hricova: So this week you listed the world’s first physical carbon credit ETP, (ticker CO2) SparkChange Physical Carbon EUA ETG. Can you explain what CO2 gives exposure to and how it is unique?
Hector McNeil: When Nik and I were at ETF Securities back in 2008, we created the world’s first carbon credit ETPs then. They tracked futures markets, which has inherent drawbacks in terms of things like you need to roll the futures, you have contango, backwardation, etc., which means that there’s extra costs to the end investor or extra drag, which can be in the percentage points. And we’re all used to having ETFs that are in the basis points rather than percentage points. So having a physical EUA product essentially means that we will hold physical carbon credit EUAs in a digital wallet with the European Union. We will hold those on behalf of investors, and then they will be able to buy that as an ETP, so the same way they could buy a gold ETC today. It’s pretty much the same structure.
The EUA market in Europe has been probably the most successful carbon credit market globally. I think something like just under 50 percent of all emissions in Europe now are covered by these credits. What’s really neat about the European scheme is they actually reduce it by about 1.5% in terms of what we issue each year. So it’s a decreasing supply as time goes on. And actually by owning CO2, you essentially take those credits off polluters, and over time, they should be less available, which should push up the value.
Where it gets really exciting is you’ve got two options as an investor then. which is what you can hold them as a differentiator or an uncorrelated asset in a portfolio. Or even more excitingly, you can actually hedge the carbon content of your portfolio so you could hold that, calculate the carbon intensity of your investment, and then hold a carbon credit to hedge that out on that product. So CO2, I think is really additive to the market, so it would be really interesting to see what happens. But we had the first day of trading yesterday and we had over $12 million of creates in a single day, which is the most we’ve ever had since we launched a product, which I think is pretty amazing, really.
Deborah Fuhr: That’s great. You’ve clearly been busy. Are there any future plans on products for markets that you can share with us?
Hector McNeil: Our base case at hand is to be at least 10 to 15 ETFs a year. This year, we’ll probably get to about 20. I suspect we’ll be doing something in the crypto ecosystem space to sit alongside the crypto platforms we have. But I think it’d be more of the thematics and I’m really excited about the active space. We’ve already got two great, active ETFs already, but I suspect that will become 20% of our business. And over time, I think we’ll have something like 120-150 ETFs. More in the value added space like thematics, smart beta active, and probably with around about 30 partners.
So I think that gets really exciting in terms of service to clients, IP content, but also really differentiated offering that can sit really well against the monolithic giants of Vanguard and iShares. We will be taking this business to the US as well, which you are probably well aware, there are white label providers in the US, but nobody really offers the full, what I call ‘the 98% solution,’ that HANetf offers in terms of distribution and marketing as well.
And already, some of our European clients are saying, ‘Look, can we get to the US? And can you guys facilitates it?’ So I think we could easily be a 50-60 billion dollar AUM issuer with probably TERs of sort of three to four times the market norm. So I think it’s really exciting times at HAN.
Deborah Fuhr: That’s great and that’s pretty ambitious. Good luck with that.
Hector McNeil: Thank you.
Margareta Hricova: Thanks so much, Hector, and thank you to our sponsor, HANetf, and of course, to all of you for watching. To watch prior episodes and to see news from the ETF industry, visit us at ETFTV.NET.
Thank you.
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