European ETF Market Suffers Amid Debt Crisis

tlydon@globaltrend.com (Tom Lydon)

The deterioration of the Eurozone government debt markets have had an unfavorable impact upon exchange traded fund market growth in Europe. This year, there are no signs of the negative trend easing.

“A typical European ETF is domiciled in one EU member state, managed in another, listed in several more countries, and may have counter-party and custodial relationships in even more jurisdictions. Managing such relationships may become impossible if barriers to capital movements are put up,(such as the proposed capital controls),” Paul Amery for Index Universe wrote. [The 10 Best-Selling ETFs of 2012]

Today, there is about one in six ETFs for sale in Europe that are on the so-called “death-list.”  Lipper of Thompson Reuters, defines funds on the death list as being at least three years old, with less than $124.7 million in assets (100 million euros), placing them under review due to profitability problems, reports Anjulie Davies for Reuters.

There are less than 50 ETFs trading in Europe that account for about 50% of all assets, with the top three fund providers dominating about 66.5% of total assets, Lipper data reveals. [ETF Chart of the Day: Europe]

“There are too many small providers of ETFs and too many of the same products in Europe, leading to fragmentation, and smaller players should look to consolidate,” Joe Linhares, head of EMEA at Blackrock’s iShares, the world’s largest asset manager and ETF provider, told Reuters.

Previously, European ETF assets grew by a compounded growth rate of 50% a year in 2005-2009, followed by a 25% jump in 2010. New figures from the ETFGI state that net new assets entering European ETFs in the first five months of 2012 are at 2% of the previous year-end’s levels, whereas in the US they are a much healthier 6%. This now puts Europe behind the U.S. from an ETF growth standpoint, a reversal of fortune for the EU.

It is apparent that the moves by the Spanish central bank over the past weekend has done little to stop the pain from spreading throughout the Eurozone. A $125 billion proposal did little to restore faith in European financial markets, and in turn, for the European ETF market. [Greece ETF Braces for Election After Spanish Bank Bailout]

Tisha Guerrero contributed to this article.