Top 6 takeaways from Deutsche’s ETF report

by , 4th February 2019

Deutsche Bank published its 110-page annual ETF review last week. Below are six highlights that we thought were interesting and relevant

1. Europe’s ETF market bigger and more liquid than you think

New trading transparency rules under Mifid II have revealed Europe’s ETF market to be a more active and more liquid place than many may have thought. DB found that for European ETFs with more than €1bn assets, their liquidity was 78% more than what was seen on screen. The understatement owes to most ETF trading in Europe occurring over the counter, much of which, prior to Mifid, went unreported.

2. ETF providers are overestimating investor interest in thematic ETFs; while underestimating interest in multifactor

There is a mismatch between the types of new ETFs being created and the types of new ETFs investors actually want. This mismatch is most pronounced in thematics and smart beta, DB found – with many, many thematic ETFs being listed globally despite only modest demand.

In the opposite direction, there seemed robust demand for smart beta ETFs – especially multi-factor it found. Yet the area saw fewer new listings. “While Smart Beta issuances have decelerated in recent years, 50% of the inflows to US-listed, US equity ETFs went to Smart Beta products,” it said.

3. More ETFs are dying before their 3rd birthday

The number of funds still trading after three years of listing is declining drastically, it found. The problem is likely to get worse, the researchers found: “We project this trend to hit below 70% survivorship for funds launched in 2019. Similarly, new fund asset gathering has become more competitive. Notably, fewer new funds exceed the $100mn AUM mark in recent years.”

4. Fixed income and multi-asset dominate product development

ETF providers globally are most interested in producing multi-asset and fixed income ETFs. The global product listing tally shows that these two categories have been the big areas of focus for new products.

5. Far more new entrants than leavers

There are many MANY more new ETF provider entering the industry than there are failed ETF providers exiting the industry. While more than 50 new ETF providers entered the market in 2018 globally, only seven left – most of which were in Asia Pacific.

6. BlackRock remains king

BlackRock is still the biggest baddest ETF cat in town, with a stranglehold on one-third of global ETF assets. BlackRock has more money in its ETFs than State Street and Vanguard combined.