Sponsored Funds Anniversary: Trading Investment Funds Like Shares for 10 Years

Oliver Heusser, Alain Picard: You are one of the "founding fathers" of Sponsored Funds. Why was such a segment launched in 2013?

Alain Picard (AP): The segment was launched at the time as part of SIX Swiss Exchange's "Over the Exchange Initiative", which offered new attractive exchange services with the aim of enabling more financial instruments to be traded via the exchange. Compared with off-exchange trading – "Over the Counter" or "OTC" for short – trading via the Exchange brings many advantages, such as equal treatment, security and transparency.

Oliver Heusser (OH): Added to this are liquidity and speed of execution. Prior to 2013, investors were at a disadvantage when buying and selling their fund units in that delayed order executions due to acceptance deadlines and retrospective NAV calculations posed a risk of loss in the event of strong market fluctuations. Secondary trading in funds also became accessible to everyone with exchange trading.

So Sponsored Funds can be traded at any time?

OH: That is correct. In the Sponsored Funds segment, a market maker continuously quotes prices so that buy or sell orders can be placed at any time during the course of a trading day. With exchange-traded Sponsored Funds, investors can react quickly to changing market conditions and rebalance their portfolios quickly and easily if necessary. Thanks to immediate execution, they know immediately what price they will achieve. Orders can be placed with a limit, as is customary with equities and other financial products.

AP: Sponsored Funds offer fund investors completely new opportunities. As an exchange, we are always looking to offer market participants more choice - whether that's by helping issuers launch and distribute innovative new investment products, providing innovative services to our exchange participants, or offering investors additional ways to diversify their portfolios.

How did the launch of the new segment go?

OH: Bank Julius Baer was the first sponsor and market maker. We made over 250 products from around 60 providers tradable in 2013. In the first twelve months, sales of CHF 245 million were generated and 2,188 transactions were executed. In 2020, there were a record 12,374 trades in Sponsored Funds, 47% higher than the previous year, and in 2021, 11,249 trades resulted in a turnover of almost CHF 1.3 billion. In the difficult trading year 2022, trades leveled off at 11,746 as well as a turnover of CHF 890 million. For the current year, as for other exchange-traded assets, we expect the upward trend to continue. This shows that the segment offers further potential.

AP: Compared to structured products and ETFs, Sponsored Funds are still a comparatively "young" segment, but we definitely believe that with the launch we have laid the foundation for further growth in the area of traditional investment funds. And investors have an additional attractive opportunity to buy or sell traditional investment funds - which not least underlines the innovative capacity of the Swiss financial center.

Aren't investment funds primarily used for long-term asset accumulation?

OH: Investors' requirements have changed over time. Institutional investors in particular are increasingly faced with the challenge of having to react quickly to market changes and make portfolio shifts - for example, from traditional investment funds into ETFs or into other financial products. It is precisely in these shifts that they benefit from the secondary trading of investment funds, as execution now takes place at the same market level and they no longer have to fear any negative impact on the performance of their portfolio.

AP: For both Julius Baer and the Swiss Exchange, the focus is on client needs, i.e. new products are only launched if there is demand. In May 2023, the 700 mark was exceeded for the first time, which means that 702 products from 95 different, renowned providers can currently be traded on the exchange - also thanks to the second sponsor, Helvetic Bank. We see large trading volumes mainly in volatile times, when investors want to react quickly to market influences.

What do you wish for the segment in the next 10 years?

OH: I would like to see the advantages of Sponsored Funds - the choice, tradability, security and transparency - recognized and used by even more investors. In any case, we will continue to expand the product range. Already today, the selection covers a wide variety of asset classes, countries, regions, sectors, themes and strategies. But there is still room for new things. And perhaps one day even every equity fund will be tradable on the stock exchange.

AP: Celebrating the 10-year success story of Sponsored Funds on the Swiss Exchange is an opportunity for us to thank the two sponsors as well as the trading participants and investors in the segment. In the future, we will continue to work closely with all financial center players to create a diversified, competitive yet regulated market where investors can trade interesting products.

Mr. Heusser, Mr. Picard: Thank you very much for the interview and congratulations on your anniversary!

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