While money was haemorrhaging from European investment funds last year and early this year, one segment of the market somehow managed to remain buoyant – exchange-traded funds or ETFs.
These low-cost tracker funds, first introduced in Europe in 1999 six years after the appeared in the US, may not be the most exciting (or lucrative) of investment products, but they have managed to keep (and indeed multiply) their investors when all others have been losing theirs – a feat not to be sniffed at in the current climate.
In fact, according to Lipper Feri, European ETFs saw sales of €21.8bn in the first half of 2008, a level nearly four times higher than the previous year. This contrasted with outflows from European investment funds of €41bn. There are now 476 ETFs in Europe with assets under management of €30.8bn.
“Market volatility and liquidity issues appear to be the main drivers behind their rapid expansion,” says Lipper Feri. “So far they have been mainly the preserve of institutional investors. But discretionary managers and private investors are becoming increasingly attracted by their flexibility, low cost and transparency.”
ETFs are particularly popular in the cross-border space in Europe, with 76% of assets attributable to funds in Lipper Feri’s ‘international’ category. The best-selling asset class over the past year was equities with net sales of €19.8bn, highlighting the ability of these tracker products to survive where others stumble.
However, anyone considering entering the ETF space should consider carefully. Although there are now 27 providers of ETFs in Europe compared with just 16 in 2006, the market remains highly concentrated. The three major players in Europe account for 86% of assets under management in ETFs – Barclays (38.6%), Lyxor (Société Générale) (25%) and Deutsche/DWS (15.7%).
And despite the many new players that have entered the market over the past two years, this dominance shows little sign of being challenged. If anything, it is intensifying.
“In terms of new business, these three groups accounted for 90% of ETF net sales over the past year with Deutsche Bank posting the strongest net flows of €14.3bn,” says Lipper Feri.
Fiona Rintoul, Editorial Director
© 2008 funds europe