After Cathie Wood brought a dose of exchange-traded evangelism to Europe last month, we have been following the topic with interest.
Ark Invest’s acquisition of a stake in Rize ETF is Wood’s attempt to export the open-exchange funds market across the Atlantic.
We at Asset Allocator like to see what’s occurring on the ground and what the potential demand might be for a surge in thematic ETFs, and our proprietary database yields some interesting results.
Eight different allocators own thematic ETFs, with specialist funds ranging from clean water to agribusiness.
ETFs comprise slightly over 20 per cent of the overall thematic products held by allocators.
Contrast this with the demand for, say, global offerings and the difference is striking.
Just 4 per cent of global funds are ETFs, with allocators favouring bog-standard index trackers.
This doesn’t suggest to us that the demand for thematic ETFs - at least among DFMs - is in any way unmet.
Also the relative strength of thematic ETFs among the allocators we cover may be because those thematic products are essentially competing with investment trusts, rather than open-ended funds among DFMs, giving them a competitive advantage in that part of the market at least.
But as we have mentioned in the past, demand for investment trusts in the equity space among DFMs is fairly soft.
The eschewing of ETFs by UK-based DFMs, as far as the wider equity market goes, can in part be explained by the cost of entry and exit compared to the US, and the relative ease of entering domestic vehicles such as Oiecs and unit trusts.
Given the steep downward pressure on the fees levied by conventional tracker funds, it’s hard to see how plain vanilla type ETF products can have a unique selling point, which is why the future looks to be thematic.
Wood’s purchase of Rize will see the firm renamed to Ark Invest Europe. Its Digital Payments Economy fund is the only of its funds in our database and it is owned by just one of the allocators we cover.
But the truth is that Ark has a considerable way to go if Rize is to rival BlackRock’s iShares offerings, which is comfortably the most popular provider of ETFs among the DFMs we monitor.
Rize runs 11 ETFs, but the total assets under management across the range is just £378mn and, as mentioned, just one of those is held by the allocators we cover.
In contrast, BlackRock has planted deep roots among the DFMs we cover, with 50 per cent of thematic funds in our database being an iShares product.
Looking more widely at equities as a whole, 40 per cent of the ETFs in our database are iShares products.
Invesco is the only company which comes close to rivalling it, with 11 per cent of the funds in our database.
Wood is obviously putting money on the fact Rize will make headway against some of the biggest players in the ETF market. We're not sure we would follow her in making that bet.
