The exchange traded fund industry’s growth story is not limited to U.S. markets. Across the pond, European investors, dissatisfied with underperforming and costly active mutual funds, have more than doubled assets in passive index-based ETFs in the past five years.
As of the end of September, the European-listed ETF market expanded to $362 billion euros, or $450 billion, reports Jenny Cosgrave for CNBC.
While the European-listed ETF space is still small relative to the 7.7 trillion euro active fund industry, Morningstar projects that the ETF industry could gain greater market share due to a “noted shift” in how investors perceive passive investing.
“Indeed, the basic dual message that active fund managers are highly unlikely to consistently meet their targets and high management fees dramatically erode long-term returns, is increasingly gaining recognition amongst the wider investor community,” Morningstar said in a report. “This should facilitate the take-up of low-cost passive investment propositions such as ETPs.”
Eight out of 10 U.S. stock funds focusing on large growth companies are trailing their benchmark index, the second-highest proportion in a decade, according to Morningstar. [Epic Fail: Passive S&P 500 ETFs Crushing Actively Managed ETFs]
Additionally, more investors are growing cost conscientious, picking out cheap, index-based ETFs to round out their core positions. The average U.S.-listed equity ETF has a 0.60% expense ratio, with the cheapest one coming in at a low 0.04%, according to XTF data. [Build a Dirt-Cheap Portfolio With These ETFs]
According to BlackRock’s iShares, the industry is experiencing a “coming of age” moment where management fees are being driven lower by increased competition among providers and growth in fund sizes. In the U.S., for example, BlackRock, Vanguard and Charles Schwab have been among the leading instigators in the ongoing fee war. [ETF Fee War Prompts Investors To Re-Evaluate Holdings]
Bolstering demand for passive ETFs, European pension schemes, with a combined assets of €1.9 trillion, are also planning to double passive fund exposure to 40% of their portfolios by the end of the decade due to “implementation leakage,” or active funds failing to deliver on promised returns, reports Steve Johnson for Financial Times.
“The ex post returns rarely match the ex ante promises,” Amin Rajan, chief executive of Create Research, said in the article.
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.