|European ETF Market: An Outline|
|April 01, 2008-|
Page 2 of 2
Who Are The Investors?
Industry estimates suggest that over half the ETFs in the U.S. are owned by retail investors, while the comparable figure is around a third in Europe, although there appears to be no hard and fast data backing these numbers up. The managed funds sector, banks, hedge funds and private wealth managers own a significant proportion of the European market, whereas in the U.S., high retail use reflects a longer tradition of indexed or passive investment and the sector's broad acceptance by fund advisors.
Across the continent, there are significant differences from country to country. For example, retail ownership is healthy in Italy (partly reflecting regulatory constraints on accessing other index-based products). In Germany, the index certificates market, a form of retail-structured product offering index exposure to different markets-sometimes with leverage and/or protection-offers direct competition to ETFs. In the U.K., retail investors' choices are still directed by independent financial advisors, who in general are reluctant to recommend investment products that do not pay commission, and who therefore tend to favour actively managed investment products with high front-end loads.
While the ETF market share of the overall mutual fund sector is now over 4% in the U.S., the comparable figure is only 1-2% in Europe. Nevertheless, and as we have seen, European ETFs are growing healthily and we can expect these figures for market share to increase. The trend towards greater private provision for pension saving across Europe can only help this trend.
Where Are They Listed?
One important thing to understand about the European ETF market is that, despite the single currency and increasing standardisation of laws at the EU level, there are still significant cultural and legal differences between the different countries, which must be taken into account by product providers. Each country typically has its own stock exchange, with its own rules and regulations.Therefore, in order to access retail markets across Europe, it has long been customary to cross-list ETFs on stock exchanges throughout the region; that is, funds will have a primary listing in one market (say, London, or Frankfurt), and then secondary listings in other countries.
So, in examining the market, we must pay attention both to primary listings and total listings. Italy, for example, has few primary listings of ETFs, but is ranked above the U.K. by total listings.
Here is a summary of European ETF listings by country and by exchange as at end-2007, ranked by number of total listings in the first table.*
As we can see, there is a healthy spread of ETF market activity across the continent, with Germany ranking top by number of listings. The recent merger between the LSE and Borsa Italiana will change the rankings in 2008, but the relatively even split of listings by exchange has meant competition in attracting new launches. This, some say, has fostered innovation in the European ETF market and helped streamline the process of launching new funds.
Setting The Scene
Starting next week, I will look further into some of the most popular European funds, talk with some of the major market participants about their views, examine product innovation in Europe and investigate the tax and regulatory framework. I'm looking forward to covering this exciting and dynamic sector for IndexUniverse.com.
I'd like to thank Debbie Fuhr and her colleagues at Morgan Stanley for their research, an invaluable source of information on the ETF market.
*Source for this and other industry data: Morgan Stanley 2007 Year-End ETF Global Industry Review