‘Low barriers to entry, high barriers to success’ is a phrase synonymous with the European ETF market given the dominance of a handful of players.
However, abrdn and AXA Investment Manager’s decision to launch UCITS ETFs over the past year marked an exciting moment for investors and the wider ecosystem alike.
The duo were the first European-headquartered giants to enter the space in over a decade following a flurry of US players such as Vanguard, JP Morgan and Goldman Sachs Asset Management.
However, the two players have started life in UCITS ETFs very differently despite the enormous potential both businesses have to disrupt the market, especially given their respective distribution powers.
AXA IM was the first to start its push into European ETFs with the launch of two active thematic ETFs, the AXA IM ACT Biodiversity Equity UCITS ETF (ABIU) and the AXA IM ACT Climate Equity UCITS ETF (ACLT) in September 2022.
The firm has signalled its intent to carve out of a slice of the active ETF market, an area that accounts for approximately 1.2% of the ecosystem, according to data from Morningstar.
This is also the focus of abrdn due to its long history in active management. In March, the UK giant unveiled the abrdn Global Real Estate Active Thematics UCITS ETF (R8TA) on Deutsche Boerse.
Leveraging the firm’s real assets team, the active thematic ETF invests in a basket of listed real estate securities across 28 markets.
However, this has been the firm’s only ETF launch since it entered the market, a strange strategy for a business that made its long-awaited splash in Europe.
“What [abrdn’s entry] shows is that regardless of how big you are and how strong your brand is, it is still an extremely difficult market to penetrate and succeed in,” Michael O’Riordan, founding partner, Blackwater Search & Advisory, said.
AXA IM, meanwhile, has been comparatively active in its approach. Spotting a potential area of price disruption, the French asset manager launched the AXA IM Nasdaq 100 UCITS ETF (ANAU) with a total expensive ratio (TER) of 0.14%, the cheapest Nasdaq 100 exposure in Europe by six basis points.
Furthermore, record demand for fixed income ETFs in H1 led the firm to launch its first bond ETF, the AXA IM Euro Credit PAB UCITS ETF (AIPE), signalling its plans to not just focus on one segment of the market.
AXA IM’s range now totals $1.4bn assets under management (AUM) across four ETFs, however, it is unclear how much of this is internal allocations inflows.
The difference between the duo’s ETF strategies could not be more stark. AXA IM has also made a series of hires to accompany its foray while abrdn appears to be relying on its US business for many capabilities.
In a market dominated by a few giants, asset managers must be aggressive in their strategy if they want to succeed. Otherwise, the European ETF market can quickly become an expensive afterthought.