Leverage Shares’ innovative exchange-traded products (ETPs) have disrupted the leveraged and non-leveraged product space in the EU and UK by bringing transparency and access. To learn more, Pulse 2.0 interviewed Oktay Kavrak, CFA, Director of Product Strategy at Leverage Shares to find out more about the evolution of their firm, their unique positioning, and what is to come from a leading issuer on the LSE.
Formation of Leverage Shares
When asked Kavrak about the formation of Leverage Shares, he shared:
“Leverage Shares was started as part of Global X as its first European venture. Upon the sale of Global X to Mirae in 2018, the Leverage Shares unit was not included in the sale and was kept by Jose C. Gonzalez, Global X Co-Founder. The company was launched to provide investors with a better and cheaper alternative to CFDs and structured products. Fast forward to now— Leverage Shares has 175 ETPs on single stocks, commodities, fixed income thematic ETFs and non-leveraged ‘Basket ETPs’. Put simply, Leverage Shares is a European leader in alternative investment vehicles.”
Primary Product Lines
“Leverage Shares’ 175 ETPs are listed across four exchanges, we’re best known for Short and Leveraged (S&L) single stocks, but our business lines include:
— S&L Single stocks
— S&L Themes (Innovation, Clean Energy, Airlines, etc.)
— S&L Country and popular indices (Germany, US, India, etc.)
— S&L Fixed Income
— S&L Commodities (Gold, Silver, Crude Oil)
— Non-levered Basket ETPs (e.g. FAANG+ ETP)
— White Label ETPs
The White Label business is Leverage Shares’ newest venture— enabling external asset managers to launch their own ETP in Europe which trades on a local exchange in a local currency. We essentially lend out our infrastructure and relationships so asset managers can list their own product on a major European venue and open a new cohort of investors. Less than one year since launching this service, we’ve already partnered with three asset managers and are in discussions with multiple more. This is a great way to democratize access to innovative investment strategies.”
Kavrak pointed out, “We have a wide range of ETPs that cater to the needs of both retail and institutional investors. We are the first issuer to launch leveraged ETPs that are physically backed. This means investors don’t have to worry about bank credit risk as all the products are backed with the underlying instruments or cash (for inverse ETPs). This is different from other issuers of such products as they all use some form of derivatives or swaps in their product structure.”
Challenges & Roadblocks
Becoming a major issuer in Europe doesn’t happen overnight. Kavrak pointed out:
“As a new entrant to the space in our early years, we faced the double whammy of being a new player and having unique products. We pioneered the concept of S&L single stocks. So before actively marketing the products, we had to educate investors on how they work. Fast forward a few years, there is now over $1 billion invested in single stock ETPs globally.”
“Additionally, Europe is quite fragmented as a region, so you really need to have a curated approach for each market. For example, ETFs are surging in popularity in Germany but remain well behind mutual funds in Italy. There’s also different currencies, jurisdictions, and language barriers that make it tough to succeed here.”
“Even if you have the above taken care of, then you need to get the products into investors’ hands. But it’s not so simple. The gatekeepers are the brokers, but many of them only onboard products that are already large (AUM thresholds) and/or requested directly by clients. So it’s a tough balancing act to launch the right product, get the word out, and also make it easily accessible.”
“Luckily, the current macro environment hasn’t had a huge effect on the business. Given that we have instruments to go both long and short, many sophisticated investors were tactically using them even throughout the general pullback in 2022. In fact, it was a record year for us in terms of trading volumes and inflows. But that record won’t last long as we’re well on pace to beat it this year.”
“As an issuer, we remain agnostic as to the potential outlook of various asset classes. This is why we empower investors with products, both long and short, that allow them to express their conviction through a normal brokerage account. Hence, they can go long, trade with leverage, go short, or simply hedge existing positions with a single trade.”
Evolution of Leverage Shares
Leverage Shares’ technological know-how and expertise have evolved over time. Kavrak noted:
“Europe is a different beast in terms of running an investment firm. Over the years, we’ve learned a lot about what works and what doesn’t. Whether it’s picking an exchange, choosing a strategy to launch, or identifying which geographies to target – our expertise has evolved by leaps and bounds.”
“Having a good product is not even half the job. You need marketing, relationships with service providers, a strong team and trading/operational capabilities. With so many products listed and products that need to be rebalanced daily, there’s a lot going on behind the scenes that no one sees. We pride ourselves on being an issuer that listens to client demand to offer them a wide range of products across multiple asset classes, leverage factors and exchanges.”
Significant Milestones
What has been the company’s most significant milestones? Kavrak cited:
“Over the years, Leverage Shares has made significant strides which have resulted in major successes. Despite being a relatively young company, some of our milestones include:
– Listing the world’s first S&L single-stock ETPs
– Reaching $500 million in AUM despite market turmoil
– Having the most traded ETP in London for 2022
– Currently holding almost 10% of all ETPs trading on the London Stock Exchange
– Having 3 of the 15 biggest leveraged ETPs in Europe
– Launching the first ‘hedge fund’ style strategy as an ETP in Europe”
Total Addressable Market
What is the total addressable market that the company is pursuing? Kavrak assessed:
“With nearly $10 trillion in assets held, ETPs continue to gain popularity among investors while mutual funds slump. The trend is clear: investors prefer the ETF/ETP structure for their diversified investments.”
“Although the US ETF space is about 4x that of Europe, Europeans are increasingly choosing the ETF wrapper too. In fact, Europe continues to grow faster than the US, and the market is expected to hit $3 trillion by 2027. A lot of this growth is expected to come from retail investors’ increasing demand for ETFs and white label ETFs for asset managers.”
“With products that are currently very popular among retail investors and a White Label platform in place, we look forward to participating in the industry’s rapid growth here in Europe.”
Differentiation From The Competition
What differentiates Leverage Shares from its competition in the white labeling and ETP space? Kavrak affirmed the following:
“Cost: Like any other ETP/ETF issuer, Leverage Shares charges a management fee for each product— ranging from 0.15% to 0.75% annually.”
“It’s expensive to launch an ETF. This means that products need to gain about $50M in assets before breaking even. We bring down that entry price to a fraction of the amount it would cost to launch a UCITS ETF. With a starting price of just $20K, asset managers can now test the European market without having to invest hundreds of thousands of dollars.”
“Speed: We can also list the product very quickly from our experience working with different exchanges in the UK and EU. From the initial conversation to the listing of the ETP, we can get this done in just 6-8 weeks.”
“Flexibility: The ETP structure means more ‘niche’ strategies can also be accommodated (small baskets, single assets, short positions, leverage, etc). While UCITS ETFs are constrained by diversification and leverage requirements, ETPs are not.”
Future Company Goals
Leverage Shares is a forward-looking issuer. In regard to their product pipeline and further expansion in the EU/UK, Kavrak concluded:
“We are planning on expanding our product range with new strategies that are not yet available on this side of the pond. The plans are all based on our core philosophy – to democratize access to strategies once available only to professional money managers. With that in mind, we will likely have over 200 ETPs by year-end. Stay tuned!”
