The European ETF industry shows a high concentration of assets under management at the promoter level. This may lead to the assumption that assets under management must show a high concentration on the level of the fund domiciles too, since common sense would expect that the promoters of ETFs tend to launch all their ETFs in a single domicile. This assumption is not 100% true, since especially those ETF promoters with large product ranges and/or a local bank as a distribution channel are tailoring their product offerings to the needs of all stakeholders. This means the respective ETF promoters launch their ETFs in multiple domiciles.
The European ETF industry held €1,284.0 bn or 9.32% of the overall assets under management held in the European fund industry (€13,781.0 bn) at the end of August 2022 and one may expect that these assets are somewhat similarly distributed over the European fund domiciles as the overall assets. Luxembourg is by a wide margin the leading fund domicile for mutual funds in Europe. It is followed by Ireland and the UK. In opposition to this expectation, the table for assets under management by domicile for the European ETF industry looks quite different as Ireland is by a wide margin the leading domicile for ETFs in Europe, followed by Luxembourg, Germany, Switzerland, and France. In total, ETF promoters in Europe use 13 domiciles for the launch of their products.
The dominance of Ireland and Luxembourg as fund domiciles for the European ETF industry is not surprising, since these two domiciles are known as the so-called international fund hubs in Europe. Given the fact that UCITS ETFs are true cross-border products which are sold in Europe, Asia, and Latin America, the respective ETF promoters may appreciate the advantages of the infrastructure and international network from these ETF domiciles because this might be helpful with regard to ETF distribution.
Graph 1: Market Share (%) of Assets Under Management by Domicile (August 31, 2022)
Source: Refinitiv Lipper
Looking at the development of the market shares from the end of August 2020 to the end of August 2022 shows that the market share of assets under management in the European ETF industry for Ireland has increased from 63.77% to 68.72% over this period, while the market share of Luxembourg, Germany, Switzerland, and France has decreased.
Generally speaking, the majority of assets within the European ETF industry (65.23%) is held by Anglo-Saxon ETF promoters, which may prefer Ireland over the other European ETF domiciles, as there are no language barriers to communicate with service providers and regulators. Therefore, the increasing market share for Ireland could somewhat be explained with product launches and the respective sales activities of these ETF promoters.
Graph 2: Market Share (%) of Assets Under Management of the leading Five ETF Domiciles in Europe (August 31, 2020 – August 31, 2022)
Source: Refinitiv Lipper
A closer view of the distribution of the assets under management for the three major asset types (bonds, commodities, and equities) in the European ETF industry shows that Ireland and Luxembourg are by far the most dominant ETF domiciles. In more detail, the ETFs from the three major asset types are accounting for 98.97% of the overall assets under management in the European ETF industry. This means in turn that alternative UCITS ETFs, mixed-assets ETFs, money market ETFs, and “other ETFs” held combined only 1.03% of the overall assets in the European ETF industry.
As to be expected from the overall data, Ireland is by far the most dominant ETF domicile for bond ETFs, as 74.19% of the overall assets under management in bond ETFs are held products domiciled in Ireland, while 22.75% of the assets under management are held by ETFs domiciled in Luxembourg. This means that the two international fund hubs account for a market share of 96.94% of the assets under management in bond ETFs in Europe.
Graph 3: Assets Under Management (in bn EUR) in Bond ETFs by Domicile (August 31, 2022)
Source: Refinitiv Lipper
On the first view it is surprising that Switzerland is the fund domicile with the highest market share (54.02%) of the assets under management of commodities funds, followed by Ireland (31.80%) and Luxembourg (11.66%). A more in-depth view shows that the dominance of Switzerland as ETF domicile for commodities ETFs is driven by ETFs which are investing in single precious metals (gold, silver, platinum, palladium) which is not compliant with the current UCITS regulation. Therefore, there are no similar ETF products domiciled and distributed with a UCITS passport in the European Union.
Graph 4: Assets Under Management (in bn EUR) in Commodities ETFs by Domicile (August 31, 2022)
Source: Refinitiv Lipper
The assets under management within equity ETFs are not as concentrated as within the bond segment. Nevertheless, Ireland is still the dominant ETF domicile (68.90%), followed by Luxembourg (20.45%), Germany (4.92%) and France (3.34%). One reason for the wider distribution of assets under management across ETF domiciles in equity space can be seen in local tax schemes or other regulations, which may prefer local domiciled funds and ETFs over those domiciled outside the country for specific investor groups.
Graph 5: Assets Under Management (in bn EUR) in Equity ETFs by Domicile (August 31, 2022)
Source: Refinitiv Lipper
The analysis of the assets under management by domiciles shows that the European ETF industry is focused on cross-border distribution and wants to leverage the advantages of the different fund domiciles. This behaviour leads to a high concentration of assets under management in the two international fund hubs in Europe, which means that the European ETF industry is not only highly concentrated at the promoter level, but also at the domicile level.
That said, the overall numbers also show that the promoters of ETFs take local regulations and the respective investor preferences into account and launch their products in domiciles which fit the needs of the investors.
In addition, it can be said that the high concentration of the assets under management on the domicile level is somewhat driven by the set-up of the respective ETF domiciles, which means this high level of concentration should be less of a concern for market regulators and supervisory authorities. This remains the case as long as these developments are not driven by regulatory arbitrage, as the UCITS regulation is interpreted differently by local regulators.
The views expressed are the views of the author, not necessarily those of Refinitiv or LSEG.
