It’s nearly Secret Santa time!! I don’t know about you but I always seem to get the most interesting presents. Last year, I got a forget-me-not blue, plastic referee’s whistle. I don’t know where it went but the dog was making some funny noises around New Year. Also, have you ever noticed how certain people always end up being the presentor and the presentee to their best work buddy. I guess it’s the magic of Christmas.
The real excitement comes in the secondary market, when the friends exchange their gifts until everyone gets what they wanted. It’s a little bit like ETF Fund Switches. A switch is when a manager transitions a significant position either within or between benchmarks to align their portfolio with its objectives. This involves a market sale and a market buy as two or more block trades. These switches must be executed quickly to maintain the cash balance, and so they can be detected by matching on criteria such as notional and time. You can see this in today’s chart, showing the largest switch transactions (above 50 €M in value per side) in and out of specific funds for December 4th.
These switches were between five issuers, eight products and five benchmarks, with only one issuer on the buy side (the issuer name and products are anonymised) - suggesting a potential relationship between them. Strict boundaries on the matching criteria provides a high degree of confidence that a switch has been detected.
Why is this relevant to everyone? ETF Fund switches are a measure of investor appetite for different products, which compete with one another on accurate replication and cost efficiency. Cross benchmark switches are an indication of shifts in market sentiment, perhaps geographically or risk appetite. As more and more Active ETFs come to the market, this provides the potential for information on investor interest in different strategies.
As ETF flows grab ever more share of AUM, understanding fund switches is becoming indispensable. Visit our website to see how our Market Structure Intelligence portal provides ETF liquidity intelligence in action and discover another angle to market trends. In the Trading Data Platform, you will see the full product names and have access to the full history and daily updates.
