Source active ETF takes advice from brokers

Source has launched its Man GLG Europe Plus Source ETF, an actively managed strategy investing in European stocks recommended by a pool of leading brokers.

The ETF tracks a long-only index developed by Man Systematic Strategies (MSS), which compiles ideas from approximately 60 brokers to create a liquid, highly diversified European equity portfolio.

The fund works by the same synthetic replication structure as the vast majority of Source equity ETFs, meaning that it is fully invested in equities and uses swap transactions with Source counterparties such as Merrill Lynch and Goldman Sachs, to minimise tracking error.

Source says the fund is designed to capture outperformance and that there is substantial evidence that the work of experienced research analysts can add value to investments.

GLG has been running a diversified portfolio based on systematically selected broker ideas since 2005. MSS head Sandy Rattray says the firm typically has about 1000 ideas live in its system at any point in time. He adds: "What we're doing is taking medium term ideas, with a horizon of two to three months, from individual brokers that we have very carefully selected. We only allow one individual at each firm to contribute."

The strategy will begin trading as a hedge fund ETF on the Deutsche Boerse from the 3 February, carrying an annual management fee of 0.75%. It joins two hedge fund ETF offerings from db X-trackers, as well as Marshall Wace's TOPS Global Alpha ETF.

Source CEO Ted Hood says: "Similar proprietary MSS strategies have delivered impressive and consistent outperformance relative to MSCI Europe over the last few years. It is groundbreaking to deliver an outstanding actively managed product in an investment with such a high degree of liquidity and transparency."

Rattray claims the Europe Plus Source ETF has not compromised the traditional benefits of the ETF structure. He says: "As far as we can tell that stands in contrast to many other active ETFs, where significant concessions have been made on the transparency side. In this case we have made our process fit the standard ETF model."