European ETFs Look to Next 15 Years

Terry Flanagan

The European exchange-traded fund industry turned 15 years old this month and over the next 15 years there is likely to be more smart beta products and consolidation amongst issuers.

The first exchange-traded funds were listed in Europe on April 11 2000 when the LDRs DJ STOXX 50 and the LDRs DJ Euro STOXX 50, sponsored by Merrill Lynch International, were listed Germany’s Deutsche Boerse.

Matteo Andreetto, global head of sales at STOXX Limited, told Markets Media in an email: “With the rise of enhanced beta funds, it will be interesting to see their growing prominence in the passive investment space, and also their role as a strong substitute to active management strategies over the next 15 years. The education of retail investors on the benefits of ETFs will be at the core of long-term industry growth.”

Andreetto added that the the fragmentation of the European ETF market will continue to present challenges to the industry’s development over the next 15 years.

ETFs in Europe can be listed and traded on multiple national exchanges. At the end of the first quarter of this year the European ETF/ETP industry had 2,105 ETFs/ETPs, with 6,414 listings, from 50 providers on 26 exchanges according to consultancy ETFGI.

Hector McNeil, co-chief executive of WisdomTree Europe, told Markets Media that he also expects to more smart beta products in Europe over the next 15 years. He added the biggest hurdle to ETF harmonisation in Europe are the different tax regimes in each country and said there is also a benefit to lifting locally in order to attract local investors.

McNeil said the European ETF market is very well poised for a number of reasons. For example, the US has 13% of mutual fund assets in ETFs while in Europe this is just 3%.

At the end of the first quarter of this year the European ETF/ETP industry had assets of $492bn. In the United States at the end of March ETF assets were $2.094 trillion according to ETFGI.

“The European market is seven years behind the US but will not take another seven years to reach $2 trillion in assets,” said McNeil.

He added that Europe initially developed with a supermarket model with all providers providing all products while in the US there are large issuers but also many independent providers.

“There will be M&A activity in Europe as sub-scale issuers will have to exit,” added McNeil. “Post the financial crisis, bank ETF platforms are no longer viable for their balance sheets so they will also be closed or sold.”

Boost, a WisdomTree company, which has specialised in leveraged ETFs this month listed four new unleveraged exchnage-traded commodities on the London Stock Exchange.

Viktor Nossek, director of research for WisdomTree Europe, said in a statement: “In the longer term, commodities may regain strength as uncertainty in the Middle East ebbs, emerging markets deleverage, and early signs of Europe recovering translate into a more upbeat sentiment on energy commodities.”

There is $2bn invested in unleveraged oil ETCs in Europe and $23bn in unleveraged gold ETCs and ETFs which can be used be investors for short term as well as longer term strategies according to Boost.

Boost said it reached a record $324m of assets under management in March alongside monthly trading volumes hitting a new record of $754m, or more than $2.2bn in notional volume.

Featured image via Comugnero Silvana/Dollar Photo Club

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