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Europe ETF Market Looks to Emulate U.S.


Combined assets under management at the world’s exchange traded products rose to a record $2.64 at the end of the second quarter, but the bulk of those assets, over $1.8 trillion, are concentrated in U.S. ETFs and exchange traded notes (ETNs).

The European ETP market is looking to emulate the success of the U.S. “Regulatory changes, such as the UK’s Retail Distribution Review, are making the low cost and transparency of ETFs attractive to retail investors,” reports eFinancial News.

Europe-listed ETFs pulled in $32 billion in the first six months of the year, less than half the $74 billion gained by their U.S. counterparts, but that “growth rate that would take total assets to more than half a trillion dollars by year-end if it persists,” according to Funds Europe.

“So far this year, equity ETPs accounted for $18.5 billion of the net flows in Europe, compared with $12.3 billion for fixed income products and a net outflow of $427 million for commodity products,” Funds Europe reported.

Europe’s ETF market already shares one thing in common: Dominance by a small number of players. While BlackRock’s (BLK) iShares, State Street’s (STT) State Street Global Advisors and Vanguard hold the bulk of U.S. ETF assets, in Europe it is BlackRock, Deutsche Bank (DB) and Societe Generale’s Lyxor unit. [Assets Growing in European ETF Market]

There are ways Europe can enhance the growth of its ETF market, including changing the perception of a lack of liquidity. Due to the fact that most ETF trades in European markets take place over the counter, there is a perceived lack of liquidity, according to eFinancial News. Education, as it still is in the U.S., is also pivotal to the growth of ETFs in Europe.

“The rapid growth of ETFs in the US, where retail investors represent nearly 50% of the investor base, has been attributed to providers educating investors on the product benefits of ETFs. In order for Europe to increase retail adoption of ETFs, the industry needs to allocate significant time consulting with financial intermediaries and investors,” writes Shawn McNinch of Brown Brothers Harriman in the eFinancial piece.

Interestingly, there are more ETPs listed across Europe than there are in the U.S. As of the end of June, Europe was home to nearly 1,440 ETFs and almost 2,060 exchange traded products from 50 providers, according to ETFGI data. The total number of Europe-listed ETPs has more than quadrupled since 2007.

“In June investors invested almost all net new money into equity exposures with the US and emerging markets being the preferred allocations. The S&P 500 index ended up 7% at the end of Q2 2014, closing at an all-time high (1963) on June 20th. Internationally, developed markets gained 2% and emerging markets are up 4%. The positive equity market performance has helped to improve investor confidence during the first half of 2014.” according to Deborah Fuhr, Managing Partner at ETFGI.

The compound annual growth rate of Europe’s ETP market over the past decade has been 35.2%, according to ETFGI. [BlackRock Implements Global Structure in Europe ETF Market]


ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.