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State Street brings ETF experience to UK

State Street Global Advisers, the investment management arm of US investment bank State Street, is offering the streetTRACKS MSCI Pan-Euro exchange traded fund (ETF) as part of its family of European ETFs.

In 1993, State Street established the first exchange traded fund in the US in conjunction with the American Stock Exchange. It has now received Financial Services Authority approval to market its European ETFs to UK investors. The funds will trade on stock exchanges in Paris and Amsterdam, but not London.

The ETF replicates the NSCI Pan-Euro index, which is made up of European companies such as Nokia, Philips Electrics and motor company Daimler Chrysler. But unlike European tracker funds, it will follow the exact composition of the index in real time. Tracker funds tend to use a process called sampling, where the fund tracks an index without holding all the constituent stocks at the same weighting as the index.

Investors in this ETF can also trade the fund in real time as they may do with individual stocks in their portfolios. But unlike individual stocks, investors get diversification across different companies with an ETF, which is usually associated with investment funds.

ETFs such as this could be used as a diversification tool for investors who already have a core portfolio of unit trusts, Oeics and investment trusts. However, as a relatively new concept in the UK, this ETF is likely to be a niche product for fairly sophisticated investors. Investors do get access to a range of European shares with a low annual management charge of 0.5 per cent. But ETFs are only available through stockbrokers and dealing costs will be incurred every time they trade.

The MCSI Pan-European rose from 894.837 points on June 13, 2002 to 1055.674 points on June 13, 2002, a rise of almost 18 per cent.


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