European ETFs Continue Record Growth

Shanny Basar

European exchange-traded funds have gathered record net new assets in the first 11 months of this year as BlackRock expects the ETF industry to double over the next three to four years.

ETFs/ETPs listed in Europe had gathered $72.6bn in net new assets at the end of last month, 18% above the record set at the same time last year, according to consultancy ETFGI’s Global ETF and ETP insights report.  ETFGI said in the report: “This marks the 14th consecutive month of positive net inflows.”

So far this year equity ETFs gathered the largest net inflows of $42.3bn, followed by fixed income with $24.9bn and then commodities with $1.2bn.

BlackRock’s ETF arm, iShares gathered the largest net inflows of $28.7bn in Europe in the year-to-date followed by Deutsche Bank’s db x/db ETC with $10.3bn. In third place was Societe Generale’s Lyxor AM with $8.6bn.

Robert Kapito, president of BlackRock, said this month that the asset manager remains very optimistic on its organic growth opportunities given secular tailwinds in ETFs and solid performance in active equity according to an analyst note from Goldman Sachs. Kapito presented at the Goldman Sachs US Financial Services Conference in New York on December 8.

The analysts said: “BlackRock expects the ETF industry to double over the next three to four years driven by an increasing number of uses for ETFs, specifically as an alternative to futures, increased adoption by broker-dealers to hedge risk and portfolio precision instruments.”

Robert Kapito, BlackRock

Robert Kapito, BlackRock

This month Source, the European ETF issuer, estimated that $100bn of assets have been switched globally into ETFs from futures over the last two years as ETF fees have fallen. Source added that investors who switch out of futures contracts into ETFs during the quarterly ‘roll’ this December could make record savings of 30 to 50 basis points on an annualised basis. December stock market futures expire on the 18th and investors would typically roll in the week leading up to this expiry date.

Rick van Leeuwen, European capital markets at Source, said in a statement that the December roll is typically more expensive for futures contracts because banks are less willing to hold higher-risk assets on their balance sheets towards the end of the financial year.

“Even taking the seasonal factors into account, the savings from investing in ETFs rather than futures is at an all-time record high. The final roll cost will not be known until after all the dividends are paid out, in February or March 2016, but all indications right now point to this being much higher than in previous December roll periods, potentially up to 50 basis points  annualised,” added van Leeuwen.

On BlackRock’s third quarter results call in October, the firm said Europe boosted sales of equity iShares. Larry Fink, chairman and chief executive, said on  the call that more investors are interested in equity exposures in Europe and more distribution platforms will start using ETFs.

Kapito added on the call that the Retail Distribution Review, new rules trying to prevent conflicts of interest in fund distribution, would boost ETF use in the region. In addition Kapito said he expects more ETFs to be used by institutions as an alternative to futures contracts and the increased use of ETFs as collateral.

This month BlackRock, BNY Mellon and State Street accepted ETF collateral lists from data provider Markit  in their collateral management schedules.

Maurice Leo, senior managing director, securities finance at State Street, said in a statement:  “We believe Markit’s ETF collateral lists should facilitate greater adoption of ETFs as collateral by creating a recognised universe of ETFs that streamline trade execution and the collateral management processes for all parties. These equity and fixed income lists will extend the universe of ETFs that State Street has historically accepted under its risk management policy.”

Markit filters more than 6,000 global exchange-traded products using set criteria to create lists of equity and fixed income funds that meet generally acceptable criteria for use as collateral.

Featured image by kaprikfoto/Dollar Photo Club

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