Why the European ETF Market is Top-Heavy
August 8th 2012 at 3:50pm by Tom Lydon
The exchange traded fund industry has experienced rapid growth both in the U.S. and in Europe. The European ETF market does display some inefficiencies which stems from being highly concentrated.
“Looking at assets under management, however, the European ETF market is still highly concentrated. The five top promoters account for more than 75 % of the entire industry. On a fund-by-fund basis the concentration is even greater,” Detlef Glow wrote on Reuters.
According to Lyxor, the European ETF market has hit a new high in assets under management, up 3% at the end of July, with 225 billion euros, reports Rebecca Hampson for Financial News. Fresh inflows and better performance in underlying indices plus stronger market moves has increased investor confidence over the past three months. [European Regulators Focus on Securities Lending in ETFs]
The top ten funds by assets under management account for 25.68 % of the overall total, while the largest fund in the European ETF universe, iShares DAX, accounts for 11.624 billion euros or 4.75% of the overall market, reports Glow.
Furthermore, of the 1,727 ETFs trading on the market in Europe, 47 have assets in management over 1 billion euros. Together, these funds make up about 50% of ETF assets in the European market, and have been profitable for the providers. [Eurozone Quantitative Easing Plans Boost Stock ETFs]
The industry works similar to the U.S. , where smaller providers may struggle to stay afloat, incurring legal costs, listing and marketing costs, and can ultimately not remain profitable if there is no growth.
According to Lipper data, there are about 294 ETFs in the European market that are in danger of closure, unable to garner at least one hundred million euros over a three-year period. [Spain's Financial Distress Drags on Stock ETFs]
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.