about alfi

September 2015 © ALFI 2015. All rights reserved.

ETF

alfi | association of the luxembourg fund industry

B.P. 206L - 2012 Luxembourg

Tel: +352 22 30 26 - 1Fax: +352 22 30 93

info@alfi.luwww.alfi.lu

Luxembourg - Your international ETF hub

Exchange Traded Funds (ETFs) are on the rise. On the European market, the number of portfolios increased by 78% from 827 to 1,474 over slightly more than five years, from the beginning of 2010 and end of March 2015. Over the same period, net assets have more than doubled, rising from 226 billion to 471 billion USD.

Globally, the evolution is even more impressive. The number of ETFs on offer at the close of March 2015 stood at 4,049 (+106% since the beginning of 2010), the net assets managed by these funds reaching USD 2,781 billion, 167% more than five years before. While this growth was initially mainly driven by institutional investors, more and more retail clients start to invest in ETFs.

Institutional and retail investors alike appreciate the main features of ETFs. Since ETFs are listed on stock exchanges, their shares or units can be traded in the same way as any other listed transferable security. They thus combine the advan-tages of both stocks and investment funds:

Diversification: by buying an ETF, an investor can access in a single transac-tion a large variety of markets, sectors, regions, asset classes and investment styles;

Liquidity: while traditional investment funds can only be traded at the end of the trading day, ETFs offer ‘intra-day’ tradability at current market prices, if necessary provided by authorised market-making firms;

Transparency: through their listing at stock exchanges and the continuous tradability, ETFs offer an efficient and transparent pricing and an easy monitoring of their daily performance;

Low costs: total expense ratios of ETFs tracking indices usually are low.

With the growing investor interest, innovation in ETFs has accelerated.

While initially, ETFs used to be passive investments that simply mirrored or replicated an index representing a particular stock market or sector, new “actively managed ETFs” striving to outperform a benchmark have emerged in recent years.

The methods used by ETFs to track an index have evolved as well, from physical replication by directly investing in some or all of the components of the relevant index to “synthetic replication” through over-the-counter index swap transactions with a counterparty.

Luxembourg is the second largest center for ETFs in Europe with some EUR 82 billion AuM2.

Assets under management by Luxem-bourg ETFs grew by 18.91% in 2014.

Thanks to its unequalled expertise in cross-border fund distribution, Luxem-bourg is especially successful in attract-ing ETFs sold on an international basis.

1 Sources: etfgi.com, CSSF, Irish Funds, Deloitte, 31 March 20152 End of June 2015

3 Sources: Lipper LIM, PwC analysis

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France Luxembourg Germany Ireland Others

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France Jersey Luxembourg Ireland Others

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The Association of the Luxembourg Fund Industry (ALFI), the representative body for the Luxembourg investment fund community, was founded in 1988. Today it represents over a thousand Luxembourg-domiciled investment funds, asset management companies and a wide variety of service providers including depositary banks, fund administrators, transfer agents, distributors, law firms, consultants, tax advisers, auditors and accountants, specialist IT providers and communications agencies.

Luxembourg is the largest fund domicile in Europe and its investment fund industry is a worldwide leader in cross-border fund distribution. Luxembourg-domiciled investment structures are distributed in more than 70 countries around the globe, with a particular focus on Europe, Asia, Latin America and the Middle East.

ALFI defines its mission as to “Lead industry efforts to make Luxembourg the most attractive international centre”.Its main objectives are to:

Help members capitalise on industry trends

ALFI’s many technical committees and working groups constantly review and analyse developments worldwide, as well as legal and regulatory changes in Luxembourg, the EU and beyond, to identify threats and opportunities for the Luxembourg fund industry.

Shape regulation An up-to-date, innovative legal and fiscal

environment is critical to defend and improve Luxembourg’s competitive position as a centre for the domiciliation, administration and distribution of investment funds. Strong relationships with

regulatory authorities, the government and the legislative body enable ALFI to make an effective contribution to decision-making through relevant input for changes to the regulatory framework, implementation of European directives and regulation of new products or services.

Foster dedication to professional stan-dards, integrity and quality

Investor trust is essential for success in collective investment services and ALFI thus does all it can to promote high professional standards, quality products and services, and integrity. Action in this area includes organizing training at all levels, defining codes of conduct, transparency and good corporate governance, and supporting initiatives to combat money laundering.

Promote the Luxembourg investment fund industry

ALFI actively promotes the Luxembourg investment fund industry, its products and its services. It represents the sector in financial and economic missions organised by the Luxembourg government around the world and takes an active part in meetings of the global fund industry.

ALFI is an active member of the European Fund and Asset Management Association, of the International Investment Funds Association, of Pensions Europe, of the International Association of Pension Funds Administrators (FIAP), and of the Global Impact Investing Network.

For more information, visit our website at www.alfi.lu and follow ALFI on

Assets under management in worldwide ETFs, USD bn, Q1 20151

Shares of funds domiciles in terms of assets under management EUR bn, Q1 20153

Shares of funds domiciles in terms of number of cross-border ETF sub-funds, Q1 20151

Market size

Luxembourg is the number one investment fund centre in Europe and the world’s leading hub for cross-border fund distribution. It is also the second-largest domicile for ETFs in Europe. In 2014, assets under management by Luxembourg ETFs grew by 18.9%.

Innovation

Luxembourg strives to be at the forefront of innovation in financial services. Regulation and market developments quickly translate into adapted products. In the ETF sector, Luxembourg can notably leverage on its first mover or leader status in emerging markets, including Mainland China, in socially responsible investments, in Islamic finance and in the RMB business.

A state-of-the-art legal and regulatory framework

Luxembourg’s modern legal and regulatory framework allows for the creation of all types of traditional and alternative funds, including all types of ETFs (passively/actively man-aged, physical/synthetic replication).So-called umbrella funds with separate compartments under a single legal structure and the possibility to create a large variety of share classes allow fund promoters to efficiently differentiate their products by tailoring their funds to offer solutions that address the needs of specific investor segments.

Distribution, distribution, distribution!

Luxembourg is recognised by the worldwide asset management community for the outstanding distribution support on offer. Luxembourg-domiciled investment funds are sold into more than 70 countries. Regulators recognise them as high quality, investor-friendly products, which significantly facilitates market access. Accordingly, more than two thirds of the world’s cross-border funds are Luxembourg funds.For ETF sponsors with an international outlook, Luxembourg is definitely the place to be. They may capitalise on well established distribution channels set up over years by the Luxembourg fund industry in Europe, Asia, the Middle East and Latin America and benefit from Luxembourg’s position as the world’s leading UCITS hub and platform for cross-border fund distribution.

Efficient tax environment for ETFs

Luxembourg ETFs are exempt from the annual subscription tax on their net assets.A low VAT standard rate of 17% applies. Custody services in Luxembourg are VAT exempt, except for services related to the control and supervision functions (to which a reduced VAT rate of 14% applies).ETFs which take the form of a SICAV/SICAF are eligible to a large number of double taxation treaties entered into by Luxembourg and may thus benefit from reduced treaty rates. Some 50 Luxembourg double tax treaties currently apply to SICAVs/ SICAFs.

Speed

Backed by state-of-the-art IT and communication technology, service providers specialised in collecting and processing data across time zones meet ETF’s need for intra-day functionality.Additionally, all major service providers are established in Luxembourg and offer fast and cost-efficient distribution support (including registration support, regulatory reporting, passporting, etc.). This offering is of unequalled quality and enables treatment of voluminous data transfers in a seamless fashion.Expertise

ETF sponsors may leverage on the know-how and experience of a unique concentration of investment fund experts specialised in all aspects of product development, administration, reporting and distribution support.A large variety of specialised service providers authorised and supervised by the supervisory authority allow ETF sponsors to achieve economies of scale by outsourcing non-core activities.

Market infrastructure

Luxembourg is home to one of the largest ETF settlement infrastructures. Luxembourg domiciled investment funds benefit from well established, safe and efficient links between the local administrators and the domestic and international Central Securities Depository (CSD and ICSD). Local experts are available to optimise connectivity with the CSD, ICSD and T2S.With that extensive infrastructure, ETF promoters can make their fund available for seamless settlement for counterparties across Europe and beyond.The Luxembourg Stock Exchange experiences strong growth regarding the listing of ETFs (CAGR of 34% in the past 4 years).

Diversification

Luxembourg-based ETFs are the most diversified in terms of their investment range. Altogether, they invest in 57 different areas. In terms of geographical focus, the top five investment areas - by order of priority - are Europe, the US, Germany, Global and Emerging Markets.A significant portion of total assets under management is invested in the industrial and real estate sectors.

Luxembourg UCITS, a global brand

Over 25 years, Luxembourg has built-up an unequalled expertise in the setting-up, administration and distribution of European regulated retail, or ‘UCITS’ funds. Since the entry into force of the AIFMD, Luxembourg has accelerated the development of its alternative investment fund sector. As UCITS are primarily designed for private investors, they are the ideal vehicle to achieve scale by exploiting the ETF retail market’s long-term growth potential.

10 reasons to make Luxembourg your ETF domicile