Ascentric predicts snap election will prolong ETF demand

Ascentric is predicting the increased demand for exchange-traded funds to continue in light of this week’s snap election announcement as it reports a cumulative £0.5m boost to clients’ portfolios from exchange traded instruments through its stockbroking service.

Prime Minister Theresa May proposed a snap election on 18 April, which MPs approved in a vote the following day.

Speaking to Fund Strategy sister publication Money Marketing, Ascentric dealing and trade support manager Daniel Hughes says the upcoming general election – to be held on 8 June – is a further cause of political instability after the shock Brexit and US election outcomes last year.

Hughes says: “What you might see is an increase in the appetite for short-term tactical [moves], these leveraged ETF plays or currency plays because people might look at it as a hedge to their portfolio performance.”

He adds: “Sometimes it is hard to hedge a long-only portfolio but through ETFs you can because you can get exposure to short asset classes. It is giving the adviser and discretionary fund management community a few more options.”

Ascentric had already registered an increasing demand for exchange traded instruments, which it partly put down to advisers trying to reduce the cost of portfolios for clients.

At the end of 2016 Ascentric had approximately £960m of exchange traded assets on platform of which close to £700m was ETFs.

In January this year, on one day, it added £90m of ETFs through one DFM shifting asset allocation into that fund class.

Hughes says: “We are [now] safely over £1bn of exchange-traded assets of which 75 per cent is ETFs.”

Indeed, Ascentric is seeing some clients switch to 100 per cent ETF-based portfolios.

Through its in-house stockbroking service, Ascentric last year delivered an average price improvement of 8.5 basis points on each client trade of an exchange traded instrument, leading to a cumulative £566,500 boost to client portfolios.

Of that, £106,000 was delivered in the week following Brexit.

Under its new pricing structure Ascentric has scrapped trading charges through its stockbroking service as it moves to an all-in fee.

Ascentric IFA sales head Justin Blower says cutting the trading fees will not impact Ascentric’s profitability.

He says: “When we did the pricing, we made sure it was revenue neutral. We have been very clear that because we have the benefit of our in-house stock-broking service it was not that expensive to run on an ongoing basis.”

Blower adds: “We have got rid of our 25 basis points charging structure and gone to a 30 basis charging structure. So that has gone up slightly but it was revenue neutral. It was never going to be a giving away things for free it was trying to create a charging structure that was transparent and in line with where the regulator was going anyway.”