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Rating:Old Mutual Dangles a 'Zero Fee, Zero Cost' ETF Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, December 08, 2009

Old Mutual Dangles a 'Zero Fee, Zero Cost' ETF

by: Armie Margaret Lee

Old Mutual Global Index Trackers on Tuesday unveiled the GlobalShares FTSE Emerging Markets Fund. Old Mutual has kicked off what is calls a 'Zero Fee, Zero Cost' promotion for the fund, under which it will cap the fund's operating expenses to 0 basis points until January 31, 2010 or until the fund's net assets equal or exceed $1 billion, whichever occurs first.

When that point is reached, the fund will sport a net expense ratio of 39 bps.

In an interview, OMGxT managing director Tendai Musikavanhu said the Zero Fee, Zero Cost program is Old Mutual's way of "letting the market know that we're serious in delivering low cost solutions to the end-investor and that we've arrived."

He said Old Mutual's goal is to offer investors low cost, low tracking error access to global markets.

Over the past months, Musikavanhu has assembled a sales team dedicated to pitching ETFs. The U.S. team includes Sherri Brown Reid, who covers New York, New Jersey, Philadelphia and Washington D.C. and was previously with Invesco; OppenheimerFunds alum Steve Saner, who covers Florida and some parts of the South as well as portions of the West Coast and Rydex Investments alum Marshall Mancini, who covers the MidWest. Reid and Saner are vice presidents; Mancini is a principal. Dijana Fishcer leads the London business.

The sales team reports to Musikavanhu, who relocated from Johannesburg, South Africa to Boston in August.

OMGxT has four other ETFs in the pipeline. Musikavanhu sees them launching starting in mid-January, with the Old Mutual FTSE Developed Markets ex US the most likely to follow right on the heels of the GlobalShares FTSE Emerging Markets Fund.

Asked if the succeeding funds will also have the Zero Fee, Zero Cost arrangement, Musikavanhu said: "We're observing how it goes this time around."
Company Press Release

BOSTON, MA (December 8, 2009) – Old Mutual Global Index Trackers (OMGxT) announced that it has listed GlobalShares FTSE Emerging Markets Fund [NYSE:GSR] (the “Fund”) on the NYSE-Arca and is offering, for a limited period, a “Zero Fee, Zero Cost” arrangement for the Fund in the manner set forth below. This will be the first Emerging Market fund launched with such a zero cost waive. Under the “Zero Fee, Zero Cost” arrangement, Old Mutual Global Index Trackers (Proprietary) Limited, the Fund’s investment adviser, will cap the Fund’s operating expenses (other than brokerage or other transaction- related expenses, taxes, interest, litigation expenses and other extraordinary expenses) of the Fund to 0 basis points until the earlier of January 31st, 2010 or until the net assets of the Fund equal or exceed $1 billion. According to Tendai Musikavanhu, managing director and chief executive officer of OMGxT, the firm is committed to being first the firm actually originating from the emerging markets to manage global and ETF products. OMGxT also aims to be the low cost provider of emerging markets exposure, of choice.

In addition, the FTSE-based ETF has previously been unavailable in the U.S and OMGxT plans to introduce a suite of up to four other global and emerging market ETFs to the U.S. in early 2010. OMGxT is owned by Old Mutual plc, the latter company owns companies that manage approx. $408billion dollars as of June 30th, 2009, on behalf of their clients. Old Mutual was established in Cape Town, South Africa in 1845.

“Today’s event is explained by the following: our intention is to provide clients with low cost, low tracking error access to global markets, starting with the Emerging Markets – Old Mutual’s origin”, Musikavanhu said. “We believe our competitive advantage is that our operating costs are largely at Emerging Market prices. Our firm’s core investment focus is tracking global and emerging markets, and we have an in-depth understanding of the potential and promise of today’s emerging economies. This is evidenced by Old Mutual seeding these portfolios with over $60m in an ETF market where capital has been scarce. This is because we aim to be one of the two or three top players in the Emerging Market space. We have also taken our capital and offered to cover, for a limited period, the operating costs of our Fund in a radical gesture to indicate to the US and global investors that we want to ensure that investors’ needs are always at the top of our agenda. We also recognize that these markets can provide many investors with significant diversification and return opportunities. We believe that investors follow earnings and that emerging markets may appear attractive. By making Emerging Markets our focus we would like to have the opportunity to add value to global clients”

“We believe low tracking error is especially important in the emerging markets arena, which provides significant challenges to managers that seek to produce as pure an index return as possible,” he commented. “We believe that investors want choice and low fee, low operating cost access to tomorrow’s economic powerhouses, as indicated by the recent rapid growth of

some our competitors. Our “Zero Fee, Zero Cost” arrangement is an industry first.” It is important to note, ETFs are subject to broker commission cost each time you buy or sell, this may offset the low fees charged by GlobalShares. Upon expiration of the “Zero Fee, Zero Cost” arrangement, the adviser has agreed to contractually waive a portion of its fees and/or reimburse expenses, such that the Net Expense Ratio is 0.39%, and the agreement is in effect until at least January 31, 2012. Mr. Musikavanhu also said that OMGxT’s newly-listed Fund may be attractive to U.S. pension and retirement plans, foundations, endowments, hedge funds and other institutional investors. Musikavanhu also expects the ETF to be employed by financial advisors in client portfolios. “GlobalShares is a new fresh brand and Old Mutual Global Index Trackers is an unfamiliar name to most U.S. investors, but we are confident that our tracking capabilities and our desire to hold a position as a low-cost index advisor will enable us to gain traction in this market”, Musikavanhu said.

Musikavanhu has 13 years’ experience in the asset management and investment banking arena in the UK and South Africa, and has worked for Old Mutual Asset Managers (UK), Robert Flemings (JP Morgan) (UK and SA), BoE (Board of Executives) (Cape Town) and Southern Life. He is a CFA Charterholder.

OMGxT’s U.S. sales team includes Vice Presidents Sherri Brown Reid, Steven Saner and Principal Marshall Maraccini. Prior to joining OMGxT, Sherri Reid raised assets from corporations, foundations and endowments as Director of Institutional Sales at Invesco. As a regional ETF Vice President for Rydex Investments, Marshall Maraccini specialized in marketing ETFs to financial consultants, registered investment advisors and brokers. Steve Saner was at Oppenheimer Funds as Managing Director of Sales. The London business is headed by Dijana Fischer, previously from BNP Paribas, London.

Musikavanhu pointed out that, relative to the developed markets, emerging market earnings have risen throughout this decade. “We believe this is a long term trend, and that the most attractive equity returns may be delivered by developing nations that are poised to expand their commercial infrastructure and build a domestic consumer economy.” he said.

According to Tom Turpin, CEO of Old Mutual Asset Management (US), OMGxT’s sister company, “OMGxT is in a strong position to make inroads in the U.S. It has developed impressive technology, possesses a deep understanding of emerging markets, and is backed by a global parent that is a worldwide player in global asset management.” 

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