The European ETF market is on course to break the €1tn barrier in assets under management by 2020 if current growth patterns persist, according to Fannie Wurtz, the managing director at Amundi ETF, indexing and smart beta.
Wurtz believes the growth rate seen in the ETF market in the past 10 years – where assets under management across the industry have growth by a multiple of six-and-a-half times to over half-a-trillion pounds – is set to continue with growth of between 20% to 25% each year.
“Perspectives for the passive industry in general and ETFs in particular are still very positive,” she says. “ETF adoption across Europe is set to accelerate, spurred by favorable regulatory changes, innovation, and an increasing acknowledgement of the long-term benefits of low-cost investment solutions,” she says.
A particular area of innovation is fixed income. Amundi has recently introduced a range of BBB-investment grade ETFs which tracks the Markit iBOXX EUR liquid corporate index of the top 60 corporate with triple B ratings at S&P and Fitch and corporates with a BAA3 rating at Moody’s.
It offers investors further granularity. “By selecting bonds with a BBB credit rating, investors can tap into the highest possible yields while being exposed to the investment grade universe,” says Wurtz. “In addition, a shorter duration can help to mitigate the impact of any hikes in the cost of borrowing, reducing sensitivity to interest rate moves.”
The rapidly developing fixed-income ETF space is an instance of market innovation based on investors seeking specific products tailored for the prevailing macro environment. “Investors are now looking for ETFs enabling them to implement genuine bond strategies in a single transaction, be it in terms of rating, duration and yield,” says Wurtz.
Education is a big theme with Wurtz who cites the evidence from the European ETF EDHEC Risk Survey earlier this year which showed there was a gap emerging between the required knowledge needed for making an investment decision on smart beta products and the ease of access and availability of information.
“Investors have now access to a large spectrum of smart-beta solutions which can answer to a variety of needs,” he says.
“This requires a good level of information to make sure to find the right answer to specific constraints and objectives. This is why educational support to investors is crucial when considering smart beta strategies: providers should be able to guide their clients, by providing them with the right education about the solutions they suggest.”
Dialogue between providers and distributors has a huge role to play in ensuring that the end clients understand the products in which they are investing. “In addition to product development, we have the capability to offer advisory services to distributors, to help them answer the question on how you combine those ETFs and how you find solutions that are appropriate to their final clients,” she says.
Amundi is competing with some of the biggest names from the US ETF space including BlackRock, Vanguard and other new entrants but Wurtz believes the market will continue to be dynamic and that the competition engendered is good for the customers “in terms of the variety of product offering and cost pressure.”
She adds that Amundi leverage its bargaining power in order to ensure its cost-efficient ETFs are among the cheapest on the market and are less expensive than the market average. However, she doesn’t believe that this last element should be the only criteria by which providers are judged.
“Investors are also looking for a partner that should be able to offer a comprehensive product range,” she says. “I talk about a broad ETF range, but also in more extensive terms about indexing products, smart beta solutions etc. Being able to offer customized solutions to institutional clients, including specific criteria such as ESG filters or smart beta, is more and more crucial.”
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