Product proliferation, price wars and active ETFs: The key ETF trends to watch in 2019


Last year saw major shifts in the European ETF industry with the launch of the first ETF through a white label platform, HANetf, in September while the Investment Association consulted on whether to include ETFs in their sectors at the end of the year.

Furthermore, the Central Bank of Ireland’s discussion paper highlighted concerns around authorised participants with the regulator deciding to maintain requirements for ETFs to offer full daily portfolio disclosure.

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Price was the key focus for ETF providers with Lyxor launching its core range in March, going as low as 0.04% while Legal & General Investment Management unveiled its suite of core ETFs in November, which integrate environmental, social and governance (ESG) issues.

However, David Abner, head of WisdomTree Europe, predicted 2019 to be the year when asset managers start to issue more innovative solutions to investors.

He said the ETF industry had so far been conservative in terms of product proliferation, adding we are likely to see a huge growth in fixed income, alternative and thematic solutions.

“There are a lot of products available but they are based around the same stuff,” Abner said. “Over the next one to three years there will be a huge growth across different types of products.”

His views were echoed by Adam Laird, head of ETF strategy, northern Europe, at Lyxor, who said there would be a big push in thematic and ESG launches.

“Many investors have seen the power of trends like technology or demographic change influencing markets,” Laird added. “ETFs are a preferred way of building these strategies and there has been some very popular thematic launches.”

However, he warned investors should always be careful when investing in thematics though, as “not all themes are created equal”.

Mark Fitzgerald, head of ETF product management, Europe, at Vanguard, said the proliferation of ETFs meant it was becoming harder for investors to compare individual strategies.

“We do have some concerns around the continued proliferation of esoteric ETF products. [This is] especially for those ETFs tracking niche indices,” he warned. “To meet this need, we are likely to continue to see data providers enhance their analytical tools for ETFs.”

With the entrance of a number of large asset managers into the European ETF market, Fitzgerald said there would be continued pressure on fees due to the increased competition.

LGIM completed its acquisition of ETF Securities’ Canvas in March last year amid plans for a major push in ETFs over the coming years, while J.P. Morgan Asset Management entered the European ETF space in November 2017 and have launched a wide range of products this year.

Fitzgerald commented: “Competition in the ETF industry will continue to intensify in 2019, especially following the entrance of a number of large asset managers into the European ETF marketplace during the past two years.”

Meanwhile, Dominik Poiger, portfolio manager of fixed income and equity ETFs at VanEck, added the pressure on fees would continue to be felt throughout the asset management industry as providers launch ETFs on major indices for very low management fees.

“The market share of ETFs compared to total assets under management is still relatively small in Europe and therefore has a lot of capacity for growth,” he added.

Active managers

Hector McNeil, co-founder and co-CEO at HANetf, also predicted more active managers would launch ETF ranges next year and added he had been speaking to a number of providers about this.

For this trend to happen on a large scale, McNeil said the Central Bank of Ireland needed to review its decision to maintain full daily disclosure on portfolios.

If this rule was changed, he continued, then active managers would be able to launch non-transparent active ETFs that would protect their IP on the product.

“In Canada, the regulator allows non-transparent active ETFs which is attracting a whole different demographic of asset managers,” McNeil said. “If you can have non-transparent in mutual funds and in ETFs in Canada, there is no reason why this cannot happen in Europe.

“It is inevitable it will happen eventually,” he continued. “If I am buying an active ETF, I do not want the whole world seeing the underlying strategy as I am paying a fee to get that.”