April 5, 2021

Monday Morning Memo: As time goes by…

by Detlef Glow.

When the first two ETFs were listed on Deutsche Börse on April 11, 2000, these kind of funds were seen as niche products. No one could foresee that ETFs would become a major growth driver for the European fund industry. Today we witness the success of ETFs by having a simple look at the assets under management of these products, which stood at €1.03 tr, or 7.81%, of the overall assets under management in the European fund industry at the end of February 2021. The success of ETFs have raised some eyebrows over the years, as some market observers saw passive products as a threat to actively managed funds and/or overall market efficiency. Others thought that the ETF industry would enter a consolidation phase and maybe disappear since they thought these products were just a flavor of the month. But as we know now, all the critiques have proven wrong so far.

Graph 1: Assets Under Management in the European ETF Industry (in bn EUR)

Assets Under Management in the European ETF Industry

Source: Refinitiv Lipper

As the European ETF industry matures, we are acknowledging some trends that we know very well from the active side of the business. The first trend can obviously be seen in the fact that the industry is closing ETFs which are not able to gather enough investor interest to become profitable. This is nothing new and no one will argue that it is in the best interest of the investor (due to the lack of liquidity) and the promoter (due to the lack of profitability) when these ETFs get closed.

The second trend, which is also common in the overall fund industry, are mergers between ETF promoters, as the fund management industry in general and the ETF industry especially is a business where scale matters. The current situation around Lyxor ETF, Europe’s third largest ETF promoter, shows that size does not protect a promoter since its parent bank Société Générale is trying to sell its ETF arm. This transaction will lead to an even higher concentration in the already highly concentrated European ETF industry and it is most likely that the merger will lead to a new number two with regard to the largest ETF promoter in Europe. (To learn more about the concentration of the European ETF market at the promoter level, please read our report: Spotlight on the concentration at the promoter level in the European ETF industry).

Both of the trends mentioned above showcase that the European ETF industry has matured from an emerging niche to a serious part of the European fund industry, and it is more than likely that the European ETF industry will continue to grow at a much higher pace than the rest of the fund industry.

The views expressed are the views of the author, not necessarily those of Lipper or Refinitiv.

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