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How is the European ETF landscape changing?

Detlef Glow
Detlef Glow
Head of Lipper EMEA Research

Exchange Traded Funds (ETFs) have evolved from plain index trackers into important tools within the actively managed space. A panel, moderated by Lipper, has discussed ways to realize the potential of ETFs for retail investors in Europe, and how the ETF landscape is changing.


  1. Exchange Traded Funds are more than just passive instruments, with actively managed products able to use the structure of an ETF as a distribution wrapper.
  2. ETFs are regarded as the most successful innovation in asset management over the last decade, although they are actually a 30-year-old product in the United States.
  3. The distribution of ETFs is one of the main asset management challenges in Europe, particularly highlighting the potential of ETFs for retail investors.

Despite rough market conditions, February was another positive month for the European ETF industry as the promoter of ETFs enjoyed inflows.

The combination of below average inflows and a negative performance of the underlying markets led to a decrease in assets under management from €883.0bn as of January 31, 2020, to €839.9bn at the end of February.

Looking at the last two decades, the Exchange Traded Funds (ETF) landscape in Europe has changed from a world of ‘plain vanilla’ index trackers to a segment that enables investors to invest in nearly any asset class with a single transaction.

A recent Lipper panel, moderated by Refinitiv’s Detlef Glow, featured contributions from Thomas Merz, Vanguard; Michael John Lytle, Tabula Investment Management; Jürgen Blumberg, Goldman Sachs and Marlene Hassine, Lyxor ETF Research.

Actively managed products

ETFs are more than just passive instruments, with actively managed products now using the structure of an ETF as a distribution wrapper.

In addition, ETFs are no longer an investment vehicle used only by sophisticated professional investors for specific reasons.

The number of retail clients investing in them is steadily increasing. They use ETFs as core building blocks in their portfolios, which is something ETFs can do quite well since they are simple to use, simple to understand, and easy to buy.

In the asset management industry, ETFs are regarded as the most successful innovation in the last decade, although in reality they are a 30-year-old product in the U.S. that accounts for about 20 percent of the mutual fund industry.

Choosing the right ETF

In Europe, ETFs are only about five percent of the mutual fund industry.

Today, ETFs are not just a pure passive wrapper but are used flexibly, highlighting that the smart beta industry has grown to US$700 billion assets under management.

ETFs are used to deliver multiple strategies to the market since they offer instant execution and full transparency in the internet age.

Watch: ETFs in the asset management industry

 

Much remains to be done, however, to educate the European retail investor about ETFs and how to choose them appropriately.

The ETF landscape

In Europe, it’s still difficult to reach the retail investor.

The financial world’s entire ecosystem needs to be involved in distributing ETF products, possibly taking into account the success of robot advisors and online banks in Germany.

There is a huge potential for ETF sales growth among European retail investors that will be influenced by the regulatory environment and the captive way retail investors are intermediated.

A recent survey showed that retail investors are influenced by fund performance first, then marketing. Growth potential exists not only in increased usage of ETFs, but in asset size because a lot of money today sits uninvested.

Watch: ETFs and un-invested money

 

As long as ETFs are used to solve problems, the market will see a lot of inflows. What will drive the industry is if people believe they can make more money with these tools and gain access to things they would normally not be able to access.

Watch: ETFs and returns

 

The main challenge is the distribution question – how to reach potential new clients in an efficient way, in order to provide ETF tools.

Refinitiv Lipper fund performance data is rigorously independent, and is trusted by investment professionals worldwide


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