When the European ETF industry started back in the year 2000, ETFs were mainly launched as primary share classes. But over time the number of so-called convenience share classes per ETF grew. Looking at the overall fund industry in Europe this is not a surprise, since additional share classes with one or more features—which are not included in the original portfolio (accumulating/distribution/currency denominations/currency hedged/etc.)—which supplement the primary share class are rather the rule than the exception for mutual funds. These share classes have the purpose to attract additional fund flows from investors who prefer the respective feature of the convenience share class over the primary share class.
That said, 2015 marked the first year in which the European ETF industry launched more convenience than primary share classes. This trend has not been reverted since and it is to be expected that the number of convenience share classes will grow further in the coming years. From my point of view, the future rise of the number of convenience share classes will be driven by the increasing numbers of bond ETFs since bond ETFs seem to have a higher number of convenience share classes attached to the primaries. The year 2023 might be a good example for this trend, since we saw that there has been roughly only one convenience share class launched for every second newly launched equity ETF over the course of the year, while there have been more than three convenience share classes launched on average for every new launched bond ETF.
Graph 1: Number of New Launched ETF Share Classes in Europe
Source: LSEG Lipper
This launch pattern is not unusual since bond investors like to invest in bond products which are denominated in or hedged to their portfolio currency. Therefore, I expect that the number of convenience share classes will grow multiple times the number of newly launched bond ETFs in the future. As a result, the number of convenience share classes in the European ETF industry will follow the general pattern in the European fund industry by overtaking the number of primary share classes in the not so distant future.
The views expressed are the views of the author and not necessarily those of LSEG.
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