Exchange-Traded Funds (ETFs) are proving to be highly attractive investment vehicles and the buy-side seems poised to contribute to the impressive growth trajectory. However, as institutional investors and asset owners incorporate an ever-growing array of ETFs and ETF issuers into their investment tool-kits, many are struggling with the associated data management challenges.
The central and persistent problem for buy-side firms is achieving and maintaining operational scale. Meanwhile, there are now more than 2,200 ETFs listed in the U.S., and ETF trading now accounts for roughly 20% of the daily volume in U.S. stock markets each day, according to Nasdaq. With more ETF products and issuers on the market, buy-side firms must manage an increasing volume of content, files and delivery channels, none of which have been standardized. That translates into precious time and resources spent interpreting and processing files for consumption and varied use case needs across the enterprise.
Data volume and format dispersion aside, the ETF product range also brings with it an increase in complexity. Security mapping, top-down/bottom-up quality monitoring and exception management processes all require further overhead. Sourcing, validating and constructing accurate, system-ready holdings data requires relationships with issuers and experience working with the data sets – it is not something to be taken lightly.
“The good news is that firms don’t need to take on the ETF data management challenge alone. Cloud-based managed data services provided by experts such as RIMES, enable firms to leverage existing ETF partnership ecosystems that deliver comprehensive holdings transparency,” stated Brett Schechterman, Head of Product – North America. “This allows portfolio managers, risk, compliance and performance professionals to understand and interact with their true economic exposure alongside the portfolios they are managing in-house.”
When choosing such a service, firms must weigh several important factors to ensure it is fit for purpose. First, the service provider needs to have a wide breadth of relationships with ETF issuers and must consume their data directly from source. Ideally, they should also be able to link these ETFs to their corresponding benchmarks to provide useful insight to the manager’s tracking and implementation approach. Even further, given the dispersion in application architecture and associated user requirements, firms should able to specify a consistent consumption format across issuers and/or to enrich that content with additional relevant reference and analytic data sets. “The robust validation checks deployed by RIMES and its ability to customize and extend content by cross-referencing our 400+ data partners alleviate buy-side firms from wasting time and resource allocation on data transformation and custom development work.”
In many ways, the data requirements of institutional investors operating in the ETF market are similar to those of the buy-side around benchmark and index data. This information needs to be brought together from a wide variety of sources, standardized, cleansed and provided in a feed-ready or API format. It needs to be timely, accurate and of high-quality so that firms can do what they do best and concentrate on their core business.
As the ETF market continues to grow, firms capable of providing internal stakeholders, clients and regulators with timely, accurate and detailed exposure data have a clear advantage.
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