What is an ETF and how do I invest in one?

Silvia Bosoni, Group Head of ETFs at Euronext, explains what an ETF is, how ETFs work and how to invest in them.

Listen to the full interview. Watch the video.

What is an ETF?

ETF stands for Exchange Traded Fund. An ETF is a fund that can be traded on an exchange just like a traditional financial instrument, and is made up of a basket of securities such as stocks, commodities, bonds, or a mixture of these.

ETFs opportunities

ETFs offer great diversification and risk management opportunities, which are typical of funds, together with flexibility and transparency of information, typical of shares. For this reason they are often a popular choice of investment for both institutional and retail investors. 

How do ETFs work?

ETF providers, or ETF issuers as they are commonly known, create ETFs and then list them on an exchange, making them available to investors for trading. 

There are two types of ETFs:

• Passive ETFs track an index, generally called a benchmark index. They are known as "passive" because they simply track the index's performance. Investors usually pay a lower commission for passive ETFs because there is less cost involved in operating and managing this type of fund.
• Active ETFs have the aim of investing in a portfolio of securities directly selected by an active manager through a process called the "asset allocation" process. The asset manager continuously works to increase the performance of the fund. Unlike passive ETFs, the investment strategy of active ETFs is established by the fund manager following the manager's own investment strategy. Active ETFs are more sophisticated and therefore they can be more costly. 

How do I invest in an ETF?

Retail investors cannot directly access the stock market, so they need to go through a broker to buy and sell ETFs. There are several ETFs to choose from. 

Example: the CAC 40 ETF

For example, buying a passive ETF that has the Euronext CAC 40 as its benchmark index will give you exposure to the 40 largest companies in France. This means that you will obtain an average performance of all the stocks in the index. This not only mitigates the risk but is also cost-effective, as it would be much more expensive to buy all the stocks of an index separately. With one ETF, you can get exposure to all the securities in which the ETF is invested.

How to choose an ETF?

When you are looking to choose ETFs for your portfolio, you must first decide what you are interested in. What asset class do you want to invest in? Do you want to choose a specific geography? Or sector? A certain theme? For instance, if you are interested in investing in sustainable companies, it can be difficult as a retail investor to go through all the paperwork and research to find the right information about each company. Instead, by choosing an ETF tracking an ESG index, you can rely on the expert, the index provider, who will do this job for you. You can therefore buy ETFs tracking ESG indices to get your sustainable investment. 

What kind of ETFs are listed on Euronext?

At Euronext, we have over 1,500 ETFs listed on our seven European markets, covering a huge variety of themes, sectors and geographies. These are issued by leading and innovative asset management firms, that are continuously offering new ETFs to invest in. There is a lot of innovation out there to provide unique ETF products following the latest trends and supporting sustainable growth. Visit the Euronext website to discover our wide ETF offering and find out more about ETFs trading.

Sibos is the largest event for the securities post-trade industry. It brings together decision-makers, experts and peers from the global financial community.  

Teams from Euronext, Euronext Clearing and Euronext Securities will be present on our stand to showcase our complete Post-Trade offering.  Euronext is building the leading market infrastructure in Europe,  connecting trading, clearing and settlement through the expansion of our clearing house and our network of European CSDs. 
 
From 10 to 13 October Euronext will be joining the debate on “Progressive finance for a changing world”, this year’s conference theme, and discuss the need to embrace digital transformation and drive sustainability and ethical change.  

Throughout the week, come by our stand to learn how we intend to shape capital markets for future generations.  

Euronext Speakers at Sibos

Monday 10 October 2022, 12:30 

Is T+1 the goal or a step to instant securities settlement?

Pierre Davoust (Head of CSDs) 

Monday 10 October 2022, 16:00

Big Issue Debate: Hype vs reality: how can digital value solve real world problems? 

Emilie Rieupeyroux (Head of Innovation)

Tuesday 11 October 2022, 14:10 

Live interview on Sibos TV

Anthony Attia (Global Head of Primary Markets & Post-Trade)
 

With this issuance, Denmark becomes one of the first countries in the European Union (EU) to issue a green bond according to the new EU Taxonomy, a set of definitions and criteria the EU has defined for sustainable economic activities. Euronext Securities Copenhagen is proud to have been part of this historical issuance.

According to Martin Wagner Toftdahl, Head of Monetary Policy and Government Debt at Danmarks Nationalbank, the new green government bond will play a critical role in developing a financial market for Denmark’s transition to a green economy. “We believe it’s important that there is a well-functioning green capital market, where investors can find green projects in a transparent and effective manner. The state’s presence on this type of market is essential to its development.”  

Setting a high standard by following the EU Taxonomy

As a part of the issuance process, Danmarks Nationalbank and the Danish government decided to follow the recently adopted EU Taxonomy and identify green expenditures based on the EU’s upcoming climate change investment legislation. “To create the necessary transparency, the EU will play a critical role in defining, from a central place, what constitutes a green investment,” Martin Toftdahl comments. “That’s one of the reasons we’ve chosen to place so much emphasis on the EU Taxonomy. Having an established definition will make it easier for issuers and investors alike.”  

Choosing to apply the new Taxonomy with this first issuance also ensures that the appropriate framework is in place from the start. “We believe it will be crucial going forward that issuers actively benchmarks themselves against the Taxonomy. For us, being a part of creating a green capital market means that we set a high standard from the beginning, and that we have an issuance that is forward-thinking and takes into consideration the developments just over the horizon,” says Martin Toftdahl.  

Creating transparency around green investments

Proceeds from the bond will be used to finance renewable energy production, including wind and solar energy projects, and the green transition of the Danish transport sector. That investors can clearly see how their investment funds are being used is an important aspect of the green bond market, as Martin Toftdahl points out. “With this issuance, we give investors our commitment that we will use the funds generated in the way that is intended. This creates transparency around the state’s investment in green projects. What will be even more important is the reporting that we will provide, where we inform investors about the impact of the green projects we initiate.”

Choosing the right approach for investors

Another key aspect of the issuance process was choosing the right issuance model. “We had considered a certificate model before this, and we had some considerations along the way, where it was helpful to work together with Euronext Securities Copenhagen to find the right approach,” states Michal Christian Nielsen, Chief Dealer, Monetary Policy Operations and Government Debt with Nationalbank. “The entire project required that it could be done within Euronext Securities Copenhagen, so it was important that we worked together to find the right model.”

In the end, Denmark issued the green bond as a twin bond, based on a concept introduced by Germany in 2020. This model supports the green bond’s liquidity and allows investors to switch the 10-year green twin bond to the corresponding, and more liquid, conventional 10-year twin bond on a one-to-one basis. Martin Toftdahl explains the rationale behind their decision. “The Twin Bond model is a well-known and proven model in the market. It was important for us to choose an issuance model that investors are comfortable with, and to ensure the necessary liquidity.”

 Best government bond demand since 2008

The first auction for the 10-year green government bond was held on 19 January 2022, and the order book was oversubscribed to a value of DKK 23.5 billion, which was the largest show of interest in a new government bond in over 10 years. DKK 5 billion was issued at the first auction, corresponding to the maximum issuance target for the auction. The bond was listed on MTS Belgium, the professional market for primary dealers, where Danish government bonds are normally traded. 

The positive reception bodes well for future green government bond issuances. Contingent upon market conditions, the plan is to issue DKK 15 billion in green bonds this year alone. Martin Toftdahl believes that they have laid a solid foundation for these plans to be realised. “Now we’ve established a framework where we can issue green bonds, and our sense is that this form of issuance is here to stay. There are clearly limits to how much the total size of green bond issuance can be. We still have as our primary focus to maintain the national debt market’s liquidity, particularly in the primary 2-year and 10-year series.”

Financing the transition to a green economy

Bjørn Stendorph Crepaz, Head of Issuance & Issuer Services at Euronext Securities Copenhagen, also believes that the market will see more green bond issuances in the future. “The European Commission estimates that the EU needs to invest an additional €260 billion each year in order to cut carbon emissions by 55% by 2030. That well illustrates the level of investment in green energy projects we will need to see throughout the EU over the next eight years. As a part of the market infrastructure, it’s our responsibility to facilitate green investments and the transition to a more sustainable economy. This is why the Listing business in Euronext is actively creating ESG indices and all four CSDs in Euronext Securities are working actively to support the new requirements around issuance of green bonds. We’re proud to have been a part of this historic issuance and we look forward to working with Denmark and Danmarks Nationalbank on future green government bond issuances.”

ABOUT THE EU TAXONOMY

The EU Taxonomy is a classification system that establishes a list of environmentally sustainable economic activities. By providing a common language and a clear definition of what is ‘sustainable’, the taxonomy aims to create security for investors, protect private investors from greenwashing and help shift investments where they are most needed. 

Source: EU taxonomy for sustainable activities

Article source: Green bonds and Danmark er nu klar til at udstede grønne statsobligationer (Danish).

Euronext Securities has entered into an agreement with Clearstream to provide asset services to Clearstream Banking AG as Investor CSD for the Danish market. This agreement, built on long-term cooperation between the two infrastructures, will facilitate access to Danish capital markets.

Direct participation and CSD collaboration to benefit capital markets

The new agreement reflects Euronext Securities’ ambition to expand its added-value services and the demand of shortening the value chain in the post-trade industry. 

“Across Europe, we’re seeing a growing trend that the value chain between issuers and investors can get shorter, notably with more direct connections between CSDs.” said Pierre Davoust, Head of CSDs at Euronext. “There are advantages to accessing the market directly, such as more transparency, lower operational risk, and some of our customers prefer this approach. We’re responding to this trend by expanding our existing portfolio of asset services and, in time, we can see this becoming a pan-Nordic offering for our customers that choose to go this route,” he comments. “This partnership further illustrates the strategic priority to pan-Europeanise and scale up our CSDs announced last November, as part of the Euronext strategic plan Growth for Impact 2024”.

Building on a successful partnership 

Pierre Davoust points to Euronext Securities’ long-standing and successful relationship with Clearstream as one of the key factors enabling this new agreement. “Euronext Securities and Clearstream have had a successful partnership for the past 13 years in Denmark. We’re pleased that we can now build on this relationship through this agreement with Clearstream Banking AG.”

Part of a larger strategic objective 

For Clearstream, this new agreement is part of a larger strategic initiative to create a more efficient operational set-up through direct market access, as Sam Riley, Head of Investor Services & Financing at Clearstream, elaborates: “Our Investor-CSD model offers access to T2S-in and -out markets, as well as to the international markets via a central access point. It is designed to improve our customers’ operational efficiency and to reduce operational and counterparty risk. Connecting directly to the comprehensive asset services of various CSDs allows us to offer our customers the set-up and securities service quality they seek – as we are doing now with Euronext Securities. We look to further broaden this engagement, both in Europe and beyond. Ultimately, this is one supporting building block to increase the efficiency of the European capital markets.”

For more information about Clearstream, go to www.clearstream.com 

Euronext Securities Copenhagen has worked with Obton and Koncenton to develop an end-to-end solution for virtual annual general meetings (VGMs). Each of the two investment firms now has a solution that is tailored to their unique needs and empowers them to run their own VGMs as a part of a self-service solution.

Two fast-growing alternative investment funds

Owned by the Obton Group, both Obton and Koncenton have experienced an exceptional growth rate in recent years. 

Obton operates at the forefront of the transition towards more sustainable energy sources, helping new and experienced professional and semi-professional investors diversify their holdings by investing in solar plants around the world. The investment firm is among the largest investors in solar energy in Europe and has more than 4,000 investors and +20 billions under management 

For the past three years, Koncenton has been the largest property investment firm in Denmark, and invested DKK 5 billion in properties during 2021 alone. This year, the company plans to add over 60 properties to its rapidly expanding portfolio and grow by 1,000 investors. Prior to the COVID-19 pandemic, both companies held in-person annual general meetings (AGMs). Given the large number of investors involved in both companies, the pandemic-related restrictions posed unique challenges.

Pandemic prompts search for a virtual, self-service solution

“Our AGM process was very physical before the pandemic,” relates Mads Møller Wejdemann, Director, Investor Services at Obton. “We scanned barcodes to verify the attendees, passed out paper ballots and collected votes manually. So, when it was no longer possible to hold a physical meeting, we needed to find a platform that would enable us to interact with our investors.” Because Obton and Koncenton have to hold an AGM for each investment fund, they needed to find a solution with a robust self-service element. “It would be a very expensive solution if we had to have a vendor provide support to hold all of our AGMs when we have so many, so one of our main requirements was the ability to run the VGMs ourselves,” he says. 

Developing a tailored VGM solution

Obton and Koncenton worked with Euronext Securities Copenhagen to develop end-to-end VGM solutions that are tailored to each investment firm’s unique needs. Koncenton developed a two-factor model, which enables the company to adjust the VGM format based on the number of attendees. “For meetings with a small investor turnout, we use the Euronext set-up for the registration process, and run the actual meeting on the Microsoft Teams platform,” explains Kenneth Klitgaard Sørensen, Company Manager at Koncenton. “But when we hold our large meetings, where we need to manage participants and voting, we need to have a digital flow covering the entire meeting.” Koncenton is also working with Euronext Securities Copenhagen to minimise the delay between the live event and the feed that investors watch. One of Obton’s requirements was being able to integrate the VGM solution with their order books, so the two systems could communicate with each other. They were able to find a solution to this requirement as well. Both investment firms have used Company Webcast as an integrated part of their VGM solution. 

Virtual format has its advantages

While the shift to virtual AGMs was made out of necessity, both Obton, Koncenton and their investors have discovered the advantages of meeting virtually. “One of our goals as an investment firm is to keep our investors as informed as possible and give them insight into their investments and how they’re performing,” says Kenneth Klitgaard. “The virtual format gives us more options so we can have as many attendees as possible. Some investors who might have been hesitant to spend an entire day in transit just to attend a 1.5-hour meeting, can now attend virtually. Our hope is that this will increase the overall number of attendees. And, generally speaking, investors appreciate not having to attend physically.” 

The virtual format also eases the administrative burden, as Mads Wejdemann points out. “When we had paper-based voting, we had to manually collect the votes and count them, which took a great deal of time. Now everything is handled digitally, and that makes the process a lot easier to manage.” 

Going forward, both investment firms will use a hybrid approach, offering investors the opportunity to attend virtually or physically. “Some people like to know who the other investors are, and by offering a hybrid solution, we can meet everyone’s needs, whether they prefer the physical or virtual format,” Mads Wejdemann says. 

Facts

VGM is a tool for companies that wish to foster active ownership and see a higher participation and interaction than in a physical meeting. 

VGM includes: 

• Flexible set-up for issuers
• Fully or partially virtual meeting
• Static, dynamic or live video stream & audio
• Ability to add and modify agenda points
• Secure back-up of data and functionality

Read more about how we can support your Annual General Meeting and your VGM.

Company Webcast

Company Webcast offers cutting-edge webcasting services to enhance the reach of your investor relations events and internal communications while increasing the interactivity and engagement of your stakeholders. Ensure maximum impact for your results presentations, virtual roadshows, Capital Markets Days, AGMs and more.

Read more about the services from Company Webcast.

Euronext Securities Copenhagen today announced that J.P. Morgan has signed an agreement to become a direct participant in the Danish market.

The agreement reflects a growing trend of shortening the value chain between issuers and investors. Across Europe, it is becoming more relevant for international players in the custody business to directly access local markets through direct connectivity with local CSDs. There are obvious advantages of this for both custodians and the clients they serve, ranging from reduced costs, a shortened custody chain, enhanced transparency and operational efficiencies. Euronext Securities is responding to this trend by converging the infrastructure and expanding services.

Anthony Attia, Global Head of Primary Markets and Post Trade at Euronext, commented: “We have had a close relationship with J.P. Morgan for a number of years, and we are proud to bring this collaboration to the next level and support them in their role as an Account Controller on the Danish market. Shortening of the custody value chain is a key assumption of Euronext’s “Growth for Impact 2024” strategic plan. Today’s announcement shows this assumption is right. Structural changes like this one do not only produce tangible benefits for international clients, they fundamentally better connect European economies to global capital markets. Concretely international investors now have a more direct and efficient access to 1.5 trillion euros of assets issued in the Danish capital market.

The most efficient way of servicing a growing market 

For J.P. Morgan, direct interface to the Danish market through local CSD connectivity will help drive its significant asset servicing presence in the Danish and Nordic markets.

Hannah Elson, Head of Global Custody at J.P. Morgan commented: ‘We are excited to partner with Euronext Securities in providing direct market access in Denmark to our global clients. A shorter custody chain brings significant efficiencies and enhances the overall client experience. This move further strengthens our franchise and growth plans across the Nordic Region and demonstrates our commitment to delivering efficient market access to global investors’.

Download the Press Release here

After almost two years of holding hybrid or virtual annual general meetings (AGMs) during the COVID-19 pandemic, 2022 was finally an opportunity for companies to return to normal. Would they, or would the benefits of holding virtual AGMs prompt a change in practice? In this article, we take a look back at the trends that governed the 2022 AGM season at Euronext Securities Copenhagen and look ahead at what’s in store for 2023.

An even split between physical and virtual in 2022

“If we look at the numbers, we can see that about half of the annual general meetings were either completely virtual or a hybrid meeting,” relates Gitte Krag Møller, Senior Client Manager at Euronext Securities Copenhagen. The largest attendance for a physical annual general meeting was over 1,100 participants; however, according to Gitte Krag Møller, this was the exception rather than the rule. “Generally speaking, the physical general meetings had a lower attendance than they had before the pandemic.”

Global companies see advantages in the virtual format

Among the companies that decided to continue the virtual format are larger companies with a wide range of international investors. “For global companies, virtual general meetings allow them to attract even more investors,” Gitte Krag Møller explains. “Attendees appreciate the flexibility virtual meetings offer, as they can attend from the office, from other countries and across time zones.”

Physical AGMs offer intangible benefits

However, for companies with strong national roots, the physical format offers an opportunity to connect with the local investor base, as Gitte Krag Møller points out. “For some Danish companies, the annual general meeting is an opportunity to hold a community event. They invite thousands of attendees and shareholders travel from all over the country to attend. These events create an enormous amount of goodwill in the community and strengthen the companies’ brand. It’s hard to replicate that experience in a virtual or hybrid format.” 

Virtual and hybrid formats also require a different approach to event planning and management. “To run a virtual meeting, you need to have the right technology in place and the personnel necessary to monitor and manage the chat function. For hybrid meetings, you also need to balance the interaction between in-person and virtual attendees and make sure everyone is heard,” says Gitte Krag Møller. Thus, virtual AGMs can be just as resource-intensive and time-consuming in terms of preparation as physical AGMs. “Going forward, companies will need to consider which format best suits their internal processes and structure.”  

Looking ahead to the 2023 AGM season

Going into next season, Gitte Krag Møller expects the mix of hybrid and physical AGMs to continue. “We have customers who have really embraced the virtual AGM and can see the potential that format has to help them reach even more investors. And then we have customers on the other end of the spectrum, who see the physical AGMs as an important part of their brand and culture. Fortunately, we have an entire suite of AGM tools and solutions that can accommodate physical, virtual and hybrid formats, and create a set-up that caters to each company’s unique needs and investor base,” she concludes. 

Fact box: Euronext Securities Copenhagen’s 2022 AGM season in numbers

• AGMs held: 200+, of which 100+ were either virtual or hybrid
• Highest attendance at a hybrid AGM: 550 
• Highest attendance at a physical AGM: 1,100+
• Proxy instructions processed: 15,000

For the past ten years, Euronext Securities Copenhagen has supported Tryg A/S in offering secure election and voting services to its employees. Thus, when Tryg A/S needed a partner to help it carry out separate but simultaneous elections in Norway and Denmark, it reached out to Euronext Securities Copenhagen for assistance.

According to Anders Rolskov-Eriksen, Legal Counsel at Tryg A/S, the company’s long-standing relationship with Euronext Securities Copenhagen made it the natural choice as the election services provider. “We’ve used Euronext Securities Copenhagen for the past ten years and we have enjoyed a very good relationship, so it made sense that we would use them again,” he comments. “The fact that their voting portal is based on technology that is quality-tested for handling general meetings was another important factor in our decision. That assures us that we will get results that everyone can trust are accurate.”

Two locations, two approaches

Flexibility was another important requirement with this year’s elections, since Tryg A/S needed a solution that could support two independent, but simultaneous elections. “We had to conduct two separate elections in Denmark and Norway at the same time, and each election had to follow its own set of regulations,” Anders Rolskov-Eriksen explains. Euronext Securities Copenhagen adapted the voting portal so it could handle the two elections, each with their own voting nuances and languages. 

To address this challenge, Euronext Securities Copenhagen could draw on its previous experience with Tryg A/S, as Julie Willum Kjærsgaard, Client Manager, points out. “We also supported employee elections for Tryg A/S in 2020, where employees with different nationalities were eligible to vote. We set up voting portals in Danish, Norwegian, Swedish and English to support that election, so we had experience with supporting multiple languages, which benefitted us here.” 

Creating a uniform voting experience

A challenge that was unique to these two elections was the fact that many of the eligible employees were on leave. “One of the most important aspects of the voting portal is providing employees with a secure way of accessing the portal and casting their vote,” Julie Willum Kjærsgaard explains. “The employees who were on leave wouldn’t have access to their work email accounts, so we needed to create a voting flow that worked for them. We focused on how we could create an equal experience for all employees, regardless of whether they had access to their work email.”  

Anders Rolskov-Eriksen highlights Euronext Securities Copenhagen’s responsiveness as a key factor in creating a voting process and experience that met the needs of both employee groups. “They gave us the input we needed and made sure we were prepared for the different process phases well in advance. At the same time, they solved any challenges that arose and addressed questions from our employees quickly, so everyone could cast their vote, without being impacted by any external technical issues.”

Proactive communication also helped ensure the highest voting participation possible. “It’s our job to make sure we create a good voting experience, and that everyone can access the voting portal quickly and easily,” says Julie Willum Kjærsgaard. “We also sent Tryg A/S regular updates so they could see how many votes had been cast up until that point in time and determine whether we needed to send out reminders to employees who were eligible to vote.”  

A process that engenders confidence

When it comes to elections and voting results, it’s important that everyone involved can trust the integrity of the process, something that Anders Rolskov-Erikson says is never in doubt when working with Euronext Securities. “On a very practical level, when you can use a system that is thoroughly tested and with personnel who know the platform well, it gives peace of mind. And even more importantly, it gives you a higher degree of confidence in the election itself. The fact that the election is handled, not by a department run by the same management who counts the votes, but by an external, independent partner who everyone recognises as a trustworthy organisation really instils trust in the process.”

To find out more about Euronext Securities’ voting and election services, please see here.

FACT BOX: ABOUT TRYG’S ELECTION

• Ran from 13 to 23 June 2022
• 3,611 eligible employees, of which 231 were on leave
• Euronext Securities sent emails to active employees; Tryg sent emails to employees on leave via e-Boks (secure digital post box)