Have you ever heard of Source? Chances are you haven’t, but the European-focused exchange-traded product company hopes to make a name for itself in this country beginning on Tuesday when the Source Euro STOXX 50 ETF (ESTX) is scheduled to start trading on the NYSE Arca. And if the company’s track record is any indication, you’ll probably hear more about it in the future.
“We’re one of the best-kept secrets in the United States, and we’re working to fix that,” says Lee Kranefuss, executive chairman at Source, a global asset manager with offices in London and New York City. His résumé includes being the architect of the iShares suite of exchange-traded funds when it was part of Barclays Global Investors.
iShares is now owned by BlackRock and is by far the largest ETF provider in the U.S.
Source launched its first funds in Europe in 2009 and now has roughly $20 billion in assets under management. Its lineup comprises about 80 ETPs, making it the fifth-largest ETP provider in Europe. Its debut in the U.S., the ESTX fund, tracks the Euro STOXX 50 Index comprising 50 blue-chip Eurozone companies. As of June 30, the index included companies from seven nations, with the largest country representations being France and Germany at roughly 36 percent and 32 percent, respectively. The largest sector components were financials (26 percent) and consumer goods (nearly 18 percent).
The fund’s expense ratio is 0.16 percent. It competes directly with the SPDR Euro STOXX 50 ETF (FEZ) from State Street Global Advisors, which also tracks the Euro STOXX 50 Index. That fund’s net expense ratio is 0.29 percent, and has sported average annualized returns of about 7.8 percent since its October 2002 inception.
ESTX, like FEZ, is unhedged from a currency perspective.
Source has an impressive pedigree with a shareholder base that includes Bank of America Merrill Lynch, Goldman Sachs, J.P. Morgan, Morgan Stanley and Nomura. Earlier this year, the global private equity firm Warburg Pincus acquired a majority stake in Source.
Kranefuss, who’s been an executive-in-residence at Warburg since 2012, joined the Source management team led by co-founders Ted Hood, CEO and Peter Thompson, president. Another member of the management group is senior advisor Richard Goldman, formerly CEO of Rydex|Security Global Investors and COO of Guggenheim Investments.
Source’s product roster includes a mix of active and passive ETPs across multiple asset classes that were created in partnership with leading asset managers, such as with Pimco in fixed income. It worked with London-based alternative asset manager Man Group to create the Man GLG Europe Plus Source ETF (MPFE), which tracks a long-only index comprising strong conviction stock picks from about 60 leading brokers who are backed by roughly 3,000 equity analysts.
Thompson says MPFE is the largest actively managed equity ETF in the world.
He notes that Source employs an open-architecture approach based on collaborating with best-of-breed firms with investment strategies that can be put into an ETF structure. “We don’t build our own content,” Thompson says. “We go out and find the best we can. The U.S. is the logical next step for our model.”