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A Guided Tour of the European ETF Marketplace - 2017 edition

ETF adoption across Europe is set to accelerate and could hit the EUR 1 trillion-mark by 2020. 

Morningstar recently published its 2017 edition of “A Guided Tour of the European ETF Marketplace”, which examines the latest trends for European exchange-traded funds (ETFs). The report finds that, driven by regulatory changes, innovation and increasing preference for low-cost investment solutions, ETF adoption across Europe is set to accelerate and could hit the EUR 1 trillion-mark by 2020.

Authored by Morningstar’s European Passive Funds Research team, led by Hortense Bioy, CFA, Director of Passive Funds Research, the report presents a comprehensive analysis of the ETF marketplace and insights into the issue of ETF selection. 

Highlights of the research report include:

  • Assets under management (AUM) in European-domiciled ETFs have doubled over the past five years to approximately EUR 550 billion at the end of December 2016 and are now at par with the longer-established market for traditional index funds.
  • European retail investors have yet to fully embrace ETFs, but distribution channels are slowly opening. Incoming regulation like MiFID II should help. In the meantime, the growing popularity of robo-advisors has advanced the case for the use of ETFs by cost-wary retail investors.
  • The European ETF market remains top heavy, with the three largest providers controlling about two thirds of total assets and BlackRock retaining its position as the dominant player with its iShares range.
  • The market share of fixed-income ETFs has increased in each of the past five years and now stands at over 24%, up from 16% in 2011. ETFs are proving a handy tool to gain exposure to fixed income in an environment where the traditional channels to access the asset class have been severely constrained by post-crisis bank regulation.
  • The shift from synthetic to physical replication continues, with assets in physically replicated exchange-traded products now representing 77% of the market, up from 66% three years ago.
  • Providers have launched increasingly complex products, such as strategic or ‘smart’ beta ETFs, with AUM in strategic-beta ETFs quadrupling in four years, landing at EUR 43 billion as at the end of 2016.

 

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Morningstar Analysts  

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