Exchange traded fund providers have been engaging in an internecine fee war that has helped bring costs closer and closer to zero in the U.S., and now, some big providers are bringing the competition into European markets.
Fund managers like BlackRock, Invesco and Eaton Vance are looking to European markets where $2.5 trillion are invested in pension savings and poise for a surge in ETF issuance, Bloomberg reports.
Europe-listed ETFs have accumulated some $725 billion in assets under management, and the market is projected to expand to $1.1 trillion by 2020, according to Bloomberg Intelligence.
“It’s literally quite shocking,” Invesco Chief Executive Officer Marty Flanagan said of the ETF industry in Europe. “It’s probably seven years behind” the U.S.
Making inroads into the Europe ETF market, Invesco agreed to purchase European ETF provider Source in April while BlackRock acquired a stake in European robo-advisor Scalable Capital in June. Janus Capital Group merged earlier this year with Henderson Group.
“The U.S. market is characterized by a large uptake in passive which has put pressures on fees,” Christopher Traulsen, global manager of research for Morningstar Europe, told Bloomberg. “We are starting to see that happen in Europe but it depends on the distribution model and the market. Passive is still very small compared to the U.S.”
Part of the slower pickup in ETFs across Europe may be attributed to the complex regulatory environment between country-to-country. Asset managers have been occupied with MiFID II, an overhual of EU financial-services regulations that goes into effect in January.
“We’re seeing regulatory changes change the ETF environment,” Fink said. “We do believe we’re seeing accelerated flows” in part because of MiFID II.
Related: Innovative Income ETF Strategies for Today’s Challenging Environment
As more ETF providers try to capitalize on the early-adoption and greater growth potential of the European markets, ETF investors can also benefit from the further growth through a targeted strategy that covers players in the ETF space.
Specifically, the ETF Industry Exposure & Financial Services ETF (NYSEArca: TETF) is a way to play ETF providers. TETF tries to reflect the performance of the Toroso ETF Industry Index, which tracks publicly-traded companies that directly or indirectly provide services or support to ETFs, including management, servicing, trading or sales of ETFs. TETF’s portfolio includes 6.4% BlackRock, 6.0% Invesco and 0.7% Eaton Vance.
For more information on the ETF industry, visit our current affairs category.