Lyxor looks beyond southern European heartlands for growth

France and Italy are particular bright spots for ETF provider Lyxor, although it is targeting market share elsewhere in Europe too.

Lyxor Asset Management is the third largest ETF provider in Europe, according to data suggesting it manages around $50bn of assets in ETF and index products, which makes up around half of total company AUM.

Arnaud Llinas, head of ETFs and Indexing at Lyxor, says the ETF market is flourishing across Europe and is proving particularly successful in southern Europe, where the company has a sizeable presence.

According to Llinas, the overall market has reached total AUM of €300bn. This is rising sharply, however, with all-time record inflows since the start of 2014 of some €7bn, which is almost half of 2013 total net inflows of €16bn.

“It was a very good start of the year for the European ETF market,” he says.
“Flows continued to be sustained. February marked the second consecutive strong month in terms of inflows, with fixed income indexations slightly ahead of equity ones, reflecting a more risk-off positioning from investors.

“Indeed, 50% of total flows came from this indexation, despite an ETF market dominated by equities – 75% of the AUM – which is very impressive. It is worth noting that commodities flows are positive for the first month since at least January 2013 and our analysts believe this positive trend will continue throughout the whole year,” he says.

As proof of the positive trend noticed across the industry recently, Lyxor has started to expand across the continent with a series of product launches, the latest of which is that of a Ucits-compliant ETF with exposure to eurozone banks.

The Ucits ETF EUROSTOXX BANKS on NYSE Euronext provides exposure to the main eurozone banks selected among the EURO STOXX index according to ICB classification. The product will replicate the EURO STOXX Banks index.

“Indeed, structural improvements in the eurozone such as an end to external deficits, a much better balance between fiscal tightness and accelerating structural reforms make eurozone financial assets particularly attractive,” the company said at the time of the launch.

Across Europe, France and Italy are the best markets for ETFs in terms of liquidity involving Lyxor – it accounts for some 60% of daily turnover on Borsa Italiana, for instance.

“We are targeting additional market share in northern Europe, UK, Germany and Scandinavia, where other players have historical presence,” Llinas says.

As Llinas also explains, Lyxor ETF inflows have been widespread in Europe, ranging from credit to emerging market debt as well as equities. However, the client base remains heavily-focused on the institutional side and there are challenges to increasing the retail business.

“The distribution to the retail segment of the market, especially in southern Europe, is heavily controlled by the banks and the competition is particularly fierce there,” Llinas explains.

However, all types of institutional investors as well as fixed income investors seem to create enough flows to build on existing business.

“There was a great talk about the great rotation from fixed income to equities, but actually it hasn’t happened. After months of outflows, interest
was renewed on fixed income while risk premia got reduced on equities, making it less attractive as an asset class,” he says.

According to Llinas, ETFs are on the way to becoming a more mainstream
investment tool, rather than remaining focused on specific market segments as it has happened so far.

“Client interest has been mainly focused on European developed equity indexation and fixed income. Going further, Lyxor will deepen its ETF fixed income range and will look at new ways of investing, including smart beta strategies,” he says.

Continued success is attributable to three key criteria which define the efficiency of an ETF, Llinas explains: performance tracking, liquidity, and quality of replication.

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