European Stock Exchanges: New markets for old
Credit Suisse Asset Management (CSAM) last month unveiled to UK investors a new hybrid product, S-CORE. This aims to combine passive stock market index-tracking with added performance through two active management approaches quite unrelated to UK equities.
It is an odd-looking beast, relying on investors' willingness to take their core, passive stock-market exposure through derivatives rather than through the cash equity market, and to devote the bulk of their remaining funds to investment in short-dated global bonds and market-neutral US stock arbitrage. At first sight it seems unlikely that any UK pension fund would embrace such a curious strategy.
But CSAM, which manages $216 billion across global financial markets, has developed this idea following discussions with UK pension funds that are disappointed with the performance of active UK equity managers and, at the same time, frustrated by the hidden costs of index-tracking. They are seeking a third way between active and passive management. "UK investors such as pension funds have come to devote 30% of their funds to index trackers," says Robert Parker, deputy chairman of CSAM, "but they are concerned by the management fees, by their desire to do better than the index and by problems encountered when a stock joins the FTSE index and so many funds are scrambling for exposure."