$1.95trn ETF/ETP industry matures as it grows – analysis

In 2012, the ETF and ETP industry posted a 27.6% increase in assets under management. However, even as new players enter, there is also a trend towards consolidation.

At the end of 2012, global assets invested in exchange-traded funds (ETFs) and exchange-traded products (ETPs) hit an all-time high of $1.95trn, with an increase in assets of 27.6% in 2012, according to figures from ETFGI’s monthly Global ETF and ETP industry insights.

The largest provider of ETF and ETP was iShares, with $760bn assets, reflecting a 39% market share. SPDR ETFs was second, with $337bn and a 17.3% market share, followed by Vanguard with $246bn and a 12.6% market share. The same data showed that these top three providers, out of 208, accounted for $1.34bn (68.9%) of global ETF/ETP assets, while the remaining 205 providers each had less than 4% market share.

Recent analysis by Lipper on the European ETF industry warns that after more than ten years with solid double-digit growth rates, the market has matured and faces new challenges to continue at this fast pace.

Detlef Glow (pictured), head of Lipper EMEA research, says: “ETF promoters are closing funds that failed to reach their targets in terms of assets under management. There is even an increasing competition in terms of replication methodologies and overall product quality. On the other hand, the market entry of Vanguard, a US-based ETF promoter, and Swedbank Robur indicates that industry participants foresee reasonable growth in the European ETF market in the future.”

Although the industry has already launched a vast variety of products based on indices from all asset classes, Lipper warns there are still some gaps on the product map that need to be closed over time.

Glow adds: “The recent launch of an ETF-based on emerging-market corporate debt shows that these gaps are mainly in niche markets. Nevertheless, some of these niche products could become an important part of the overall product offering.”

Meanwhile, the new generation of strategy indices will act as a driver for further variety in product ranges. The introduction of a new methodology to construct an index – such as risk weighted or fundamental indexing – can quickly add up to another couple of thousand new indices.

But, Lipper warned, given the experience from the existing product ranges of the index providers, only a few of the new indices may become relevant for investors.

Meanwhile, despite the need for new products, it will be important for the industry to attract new investors to the products to widen the market. Therefore, it is important that ETF promoters make a significant effort to educate clients to ensure they clearly understand how ETFs can be used to help them reach their individual investment targets.

New business in europe

As new players enter the market, there is also a trend toward consolidation. Glow says: “Some ETF promoters might merge their businesses, while others may go out of business without a successor available to buy their funds. New players may buy established ETF promoters to kick off their business in Europe.”

This trend was confirmed by BlackRock’s decision, announced early in January, to enter into a definitive agreement to acquire the ETF ­business of Credit Suisse. The transaction, subject to regulatory approvals, is expected to be completed by the end of the second quarter of 2013, and will create a combined platform with an expanded iShares EMEA ETF range of 264 ETFs, with $157.6bn assets under management.

BlackRock has a long-standing presence in Switzerland, with a history of service from offices in Zurich and Geneva, and more than 50 employees based in the country already. Credit Suisse manages $17.6bn across the 58 funds in its ETF range, including $8.7bn in nine funds domiciled in Switzerland, as well as funds in Ireland and Luxembourg.

Joe Linhares, head of iShares EMEA, says: “[The] agreement brings together the innovative culture of two premier ETF providers with a shared commitment to growing the ETF category.

“Our long-term strategy is based on tapping growth markets in a disciplined way and deepening our presence with investors, and this acquisition will create an exceptional ETF platform with which to serve local investors and deliver value to shareholders.”

Following the announcement, Christian Gast, head of iShares for Switzerland added that European investors are grappling with how to generate consistent, risk managed returns, and are looking for new ways to meet their financial goals.

“iShares’ track record of responsible innovation and high-quality products, combined with Credit Suisse’s heritage, will offer local investors an expanded range of ETFs and an even stronger on-the-ground support,” he says.


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