After the announcement on July 3, 2018, of the takeover of the Commerzbank Equities Markets and Commodities (EMC) unit by Societe Generale, some market observers are speaking about possible further consolidation in the European ETF industry. There are also concerns that the concentration of the market is increasing further, since this takeover means that ComStage (the ETF promoter of Commerzbank) might now become integrated into Lyxor ETF (the ETF promoter of Societe Generale). But are these fears of increasing concentration actually justified, and is the European ETF industry really in a consolidation mode?
At first look both assumptions seem to be correct, since this recent takeover means there is one fewer active promoter in the European market. But, as I have written in several market reviews, I don’t see a real consolidation. There are always new market entries into the European ETF market, and real consolidation would mean the number of ETF promoters would actually shrink over a longer period, 12 months or even longer.
With regard to the concentration of assets under management, the assumption of increasing concentration also seems to be right, since the combined entity will become the second largest ETF promoter in Europe with EUR73.2 billion in assets under management as of June 30, 2018. That said, the combined business will still be far smaller than the leading ETF promoter iShares, which manages €299.5bn in ETFs, and only €2.4bn ahead of the Number 3 promoter—Xtrackers (€70.8bn).
But even with regard to the market share of the five top ETF promoters in Europe, the addition of the ComStage assets (currently Number 11) to this group has no major impact. This increases the market share of the five top promoters only from 79.47% to 80.81% as of June 30, 2018. That is in line with the past market share of the five largest promoters, as shown in Graph 1.
The graph also depicts that the European ETF market is highly concentrated at the promoter level. The 20 top ETF promoters (48 overall, as of June 30, 2018) held at all observed periods in the graph a market share of more than 99.37%. In other words all promoters that were not in the top 20 had never had a combined market share of more than 0.63%.
This level of concentration may raise the question of whether there is still enough competition in the European ETF segment, or whether the leading promoters are so dominant that no other provider can gain a significant market share. From my point of view there is still a lot of competition; the best example for this was the market entry of Vanguard. The promoter made its way up to being the sixth largest promoter in Europe (€33.3bn in assets under management) over the last few years. Other examples are companies such as Wisdom Tree, which also has shown steadily increasing assets under management, or UBS ETF, which has worked its way up to being the fourth largest ETF promoter in Europe with €47.1bn of assets under management.
In this regard, it can be said that the takeover of EMC may help Lyxor increase its market share, but from my point of view it will have no major impact on the wider concentration of the European ETF industry.
That said, I would not be surprised if we witness even more takeovers in the next 18 months, since a number of the smaller ETF promoters might not be profitable and may therefore look for an appropriate deal. I am also fairly sure that it won’t always be a takeover of a small company by a larger competitor, as proven by the VanEck-ThinkCapital merger.
It can be concluded that mergers and acquisitions are a natural change in the promoter landscape when a market segment matures, but this does not mean the industry is in a consolidation mode. These transactions may also bring new names to the top spots of the promoter tables, raising the question of whether this will lead to even higher concentration or whether the market will enjoy enough new entrants that it leads to shrinking market concentration.
Detlef Glow is head of EMEA Research at Thomson Reuters Lipper