ETF providers are broadening their ranges with smart beta funds, specialised products and even a fund that tracks only luxury product makers, as they seek to steal market share from active fund managers. We talked to Fannie Wurtz of Amundi about the trends.
The exchange-trade fund (ETF) market is growing fast. In the first nine months of the year, a net $47 billion (€37 billion) flowed into the ETF industry in Europe, according to research firm ETFGI. Although Europe still trails North America in terms of flows – the global net inflow into ETFs in the first nine months was just shy of $200 billion, according to the data, and most of that was in the US – the European continent, and particularly France, is home to a number of ETF providers. Two key French players are Lyxor ETF and Amundi ETF, with specialist firms such Ossiam also carving out a share of the ETF market.
What’s interesting about the development of the market is how ETF providers are offering funds that give exposure to specialist or niche investment strategies that were once the preserve of active fund managers. In April, Amundi ETF launched a fund that tracks an index of luxury brand names from S&P, a product which, perhaps unsurprisingly, is popular with private banks, according to Fannie Wurtz, global head of sales for ETF and indexing at Amundi.
Another new product from the firm that has gained inflows this year is an ETF that tracks high-yielding European government bonds – the likes of Italy, Portugal and Greece, whose bonds command a risk premium and therefore offer investors the chance of some reward unlike, for instance, Germany, where yields are meagre.
In the past, a strategy that targets only risky European government bond issuers might have been the preserve of active managers. Now, ETF investors can gain exposure to the same strategy with the benefits of passive management: low fees, transparency, liquidity.
BUZZWORD DU JOUR
The French ETF providers are also involved in smart beta, the buzzword du jour in the passive investment space. Using smart beta, investors can gain passive exposure to even more specific strategies: equity indices weighted to favour low-volatility stocks, or to high-growth stocks, for instance.
Roughly a third of Amundi ETF’s clients use smart beta and another third are planning to use it, according to a survey by the Edhec-Risk Institute released in March 2014. The firm launched a multi-smart beta ETF in June which seeks to combine multiple investment factors and so offer investors diversification across smart beta strategies. That said, Wurtz believes smart beta ETFs will remain a niche product for the time being. The main use of smart beta, she says, is for bespoke indices.
“The growth will lie in indexing and customised mandates. We see it in terms of volumes into the institutional and sovereign space.”
When Funds Europe visited Wurtz at Amundi’s headquarters in Paris, we found her to be in an upbeat mood.
Amundi ETF had added €1.9 billion in net new assets in the year till the beginning of October, which alongside market growth left it with €14.2 billion, about 25% more than it had at the end of 2013.
The growth appears also to validate the firm’s strategy of competing aggressively on price, something it can do because it is part of Amundi, which with €821 billion under management is the largest asset manager in Europe. Economies of scale mean the firm can offer lower fees to notoriously cost-conscious passive investors.
“Innovation is key,” she says. “With index products, the price is important. And you have to have a good replication. It’s about innovation at the cheapest price.”
©2014 funds europe