The first single share ETPs without leverage aim to appeal to retail investors

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Leverage Shares has an issue with its new lineup of exchange traded product launches in Europe. Not only are they not being exploited, but, as the world’s first single-action FTEs, their marketing will have to involve education as well.

For example, given the name of the provider, investors could be forgiven for thinking that they are just another version of the company’s leveraged or reverse ETPs that amplify gains and losses, reset every day, and are generally considered inappropriate for retail investors.

However, the products do not promise any suitable returns. Instead, they invest directly in the underlying company, and with their launch at $ 5 per share, their additional share classes in pounds sterling and euros, and their offering from large companies such as Tesla, they are addressed directly to individual European investors.

Oktay Kavrak, product strategist at Leverage Shares, said it was no surprise that new products are not well understood at this time. “As we’ve only done leveraged FTEs so far, I would say that’s expected,” he said.

But they have caught the attention of some industry participants.

Matt Brennan, head of passive portfolios at AJ Bell, one of the UK’s largest investment platforms, said that while no decision has yet been made to add the products to the platform, AJ Bell “actively monitored” them.

“In general, I’m not generally a fan of ETPs, as they add additional complexity, but to be fair with these products, they seem to solve a few different issues,” Brennan said.

The products, which it started rolling out in May, have effectively allowed UK and European investors to buy fractions of shares in large foreign companies such as Tesla, Google and Amazon for around $ 5. That compares to around $ 600 for a single share in Tesla, $ 2,500 for Alphabet, and nearly $ 3,500 for Amazon.

The latest Leverage Shares launches last week added large Chinese companies such as Nio and JD.com to the family of non-leveraged single share ETPs, which are listed on the London Stock Exchange, Euronext Amsterdam and Euronext. Paris.

Kavrak said ETPs were already available on Interactive Brokers and Swissquote platforms and Leverage Shares was in negotiation with other platforms including AJ Bell and Hargreaves Lansdown.

“I can understand the rationale for a leverage-free approach to accessing single stocks that act like a fractional proxy share – although investors will clearly have to pay an ongoing fee for the lien – something they don’t. do not need to do when they have the standard action. “said James McManus, chief investment officer at Nutmeg, a UK investment platform that offers low-cost investment portfolios.

“This is clearly an imperfect solution to an existing problem and highlights the fact that many platforms have not solved the problem of fractional shares, unlike their US counterparts,” added McManus.

So-called split stocks allow retail investors to own a portion of a stock, which can be useful if the stock is expensive or if large movements in the stock price require portfolio rebalancing. Nutmeg has developed a fractional ease of action which it uses for its portfolio offerings.

Brennan pointed out that in addition to allowing fractional shares, currency share classes eliminated the need for currency conversion fees, which could be high on some platforms.

Investing in U.S. companies through Dublin-listed ETPs would also relieve investors of the need to complete paperwork to avoid criminal tax rates, Brennan said, although he cautioned that potential investors should also remember that ETPs listed in Europe often trade when the markets on which their underlying stocks are listed are closed.

He also highlighted the potential burden of costs that FTEs would entail. These included the 0.15 percent annual management fee, but also the likelihood of wider bid-ask spreads than a more diversified ETF. He added that ETPs might not track the underlying stock very effectively if cash is not fully invested and dividends are not reinvested.

However, Todd Rosenbluth, head of ETF and mutual fund research at CFRA, said the products looked attractive and were relatively inexpensive for what they offered.

“I think a 0.15% fee for equity trackers is modest, given the access they provide, and we expect trading costs to improve as more investors are discovering them. Most new products traded on the exchange initially generate limited volume, ”he said.

He said they should not be confused with other Leverage Shares offerings. “There are leveraged versions, but the ones we’re talking about are as risky as owning Tesla or Amazon directly.”

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