London-based ETF provider Source has joined forces with Legal & General Investment Management to foray into the exchange-traded funds (ETF) market.
Source has selected Legal & General Investment Management as manager to launch a new physical fund platform called Source Markets II Plc in 2016, which offers physically backed ETFs.
LGIM will act as the investment manager for the physical fund platform and will be responsible for running the new ETFs, while Source will manage the operational aspects of the platform.
Additionally, Northern Trust will act as the administrator and custodian for the new platform.
The new platform will offer physical ETFs that buy the underlying constituents of an index.
The launch of the platform is expected to expand Source’s range of 15 physical exchange-traded products, including fixed income ETFs, precious metal ETPs and a China A-shares equity ETF.
Source said it has no plans to convert any of its existing synthetic products from its multi-counterparty swap model.
In 2012, LGIM has launched a commodity ETF in partnership with Source called the LGIM Commodity Composite Source ETF (LGCU).
Source chairman Lee Kranefuss said: "We want to enable our investors to select the structure they prefer and are most comfortable with.
"Over 75% of investor flow since January 2014 has been into physical ETFs, so there is clearly strong demand for this type of replication method, and we intend to offer all of our investors the choice they deserve."
"We have a wide variety of investment ideas in the pipeline for 2016, some of which may be more suitable for physical replication and others for alternative methods," he added.
Kranefuss added that having capabilities to launch more physical products would allow Source to target a wider investor base.