European ETF launches continue at a rapid rate, with the total number of funds now well in excess of the US market total, despite Europe’s smaller scale. Meanwhile, 2009 was a boom year for ETF and ETP assets under management across Europe, with the size of the market increasing by nearly 60%.

Which ETF and ETP providers were the biggest gainers last year, and how have the newer entrants fared? Can the hectic growth rate of the last five years continue? And will competition push costs down further?

According to the latest ETF Landscape Industry Review from BlackRock, there are now 891 European ETFs, compared to 791 in the US, despite the smaller footprint of Europe’s exchange-traded fund market (worth US$218 billion, compared to the US market’s US$665 billion, according to BlackRock).

Top 15 European ETF/ETP Providers

Big Three Lose Share, But Maintain Control

By growing their assets at less than the overall ETF market’s 59% rate of increase, the biggest three European issuers have seen a modest drop in their market share: -1.4% in the case of iShares, -4% for Lyxor and -0.4% for db x-trackers.

Nevertheless, the big three’s combined market share, at 74%, still represents a substantial challenge to the smaller issuers seeking to break into the major league.

Efforts to crack their dominance in the European marketplace are coming from several sources. Perhaps the closest real challenger in the ETF market (given that ETF Securities, ranked fourth in the above table, is still primarily an issuer of single commodity products) is Credit Suisse, which has announced a major expansion of its product range and has also embarked on an aggressive hiring programme, marked most notably by the recent poaching of Dan Draper from Lyxor.

According to head of beta strategies Oliver Schupp, Credit Suisse aims to combine the best of the two predominant types of index replication techniques used in the European market: cash or in specie replication, traditionally used by ETF providers from an asset management background, and swap-based, popularised by those ETF providers which are predominantly the offshoots of the investment banking arms of their parent companies.

German provider ETFlab, a subsidiary of DekaBank, has also seen a substantial increase in its assets in 2009, primarily in its funds tracking the DJ Euro Stoxx 50 and DAX indices. ETFlab is targeting European institutional ETF investors, says Florian Schoeps, product specialist at the issuer. It has concentrated on cash-based (in specie) replication within its funds, he adds. While the firm now offers a broad range of equity and fixed income exposures through its 32 funds, it has so far stuck to a policy of listing its funds only in Germany, Europe’s largest ETF market both by assets and official trading volumes.

Meanwhile, Source and ETF Exchange (which is majority-owned by ETF Securities) are taking a different approach in their attempts to gain ground in the European market. These two ETF providers are using a “platform” model, whereby multiple partners combine to provide swap contracts and/or ETF distribution channels. The platforms have only been around for less than a year, so it’s probably too early to judge their ultimate chances of success.

The Rise Of The Discounters

Other providers are making inroads by offering consistently cheaper pricing on standard index products.

ComStage and CASAM (now renamed Amundi) have both pursued this strategy since the two firms commenced their operations in 2008 and have been rewarded by an increase in assets to US$6.2 billion and US$4.8 billion, respectively. They both saw triple-digit percentage gains in funds under management last year.

Judging by the business plans of the two issuers, they intend to continue their expansion: Amundi has maintained a steady rate of ETF launches at around 10-15 per quarter and now has 78 funds across a broad range of asset classes, while ComStage, with 65 funds now in its stable, has recently launched its first ETFs on NYSE Euronext in Paris, signalling its intent to broaden its geographical investor base.

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