In Europe, Ben Seager-Scott, senior research analyst at Bestinvest, says the ETP market is still fairly immature and we only have to look over the pond to the US to see what the future of the European market may look like.
Mr Seager-Scott says there are several themes that come out at the moment, and are certainly ways in which the market here is evolving:
1) Price wars - particularly for the traditional, liquid indices such as S&P 500 and FTSE 100 there is little to significantly differentiate many of the products on the market other than cost, so we are seeing a small number of the largest players compete to drive down their prices aggressively in these high-volume products
2) More niche asset classes. Mr Seager-Scott says we are continuing to see some more ‘targeted beta’ coming through, which means more that focus on single countries, single sectors or specific carve-outs of broader indices, such as ETPs targeting different maturities within the bond markets.
Most recently, Mr Seager-Scott says we have seen the launch of ETPs tracking the Chinese A-share market, which has previously been largely inaccessible to most investors and is a particularly interesting development
3) Alternative beta strategies – As investors become more comfortable with ETPs generally, Mr Seager-Scott says he thinks there is greater appetite to move away from the traditional, market-cap weighted indices into alternative strategies which are really starting to take on areas of the active fund management industry that have so far had little to fear from ETPs.
Examples include ETPs tracking equity-income indices, low volatility indices and indices with inherent value/growth biases.
4) Active ETPs – Finally, Mr Seager-Scott says it is important to remember that exchange-traded products are simply a type of mechanism to allow investors to invest into open-ended vehicles via the stock exchange which therefore allows intraday liquidity.
Mr Seager-Scott says: “While most ETPs are passive trackers (albeit some pretty racy indices in certain cases) there is no rule that says they have to be passive.
“Already there are some quasi-active ETPs (or perhaps ‘cyborg’ ETPs) which combine elements of a human and systematic involvement.
“I think this will continue and we may see the launch of straight-forward actively managed products through the ETP architecture.”
Frank Spiteri, head of distribution of ETF Securities, says the popularity of exchange traded products seems set to continue.
Despite a trebling of the amount invested in ETPs over the last decade, Mr Spiteri says the European industry is still underdeveloped in comparison to the American marketplace, where ETPs account for 20 per cent of all passive investment, compared to only 8.7 per cent in Europe.
Mr Spiteri says: “ETP usage in Europe remains dominated by institutional investors compared to the US market.
“Retail investors and their advisers hold only 15 per cent of ETP assets in continental Europe and 10 per cent in the UK, while in the US these groups hold 50 per cent of all ETP assets.
“If growth follows the same trajectory as in the US, we expect to see considerable expansion in ETP use among retail investors.”
