Think ETFs is quite a rarity; it is the only dedicated ETF provider in the Netherlands and although the market is relatively small on a European scale, it still leaves it open to new entrants hoping to establish a name. ETF Stream spoke to co-founder and chief executive Martijn Rozemuller about how he hopes Think will manage to spread the message about the product to a wider retail audience and how he hopes to look beyond the Dutch border for further expansion for the company. First, though, he talks about how he eyed an opportunity in his home market and what prompted him to help launch Think at the turn of this decade.
Can you explain the history of Think ETFs?
Martijn Rozemuller: I started my career as an arbitrage trader at Optiver in 1995 and when the first ETFs came to Europe in 2000 I had front-row seats to study them as a professional trader. I was convinced these were very interesting investment instruments and started using them more and more in my private investment portfolio and it took me a couple of years to realize that this was far from mainstream. The idea to start a Dutch ETF issuer came to me in 2007/2008. In that period a friend and former Optiver colleague mentioned how ETF trading in Europe took off and together we thought about the idea of setting up an ETF issuer and we decided to see if it would be possible to set up a local ETF issuer together. In 2008 I did some research and the idea slowly turned into a business plan. In 2009 Gijs Koning joined the company and at the end of that year we listed our first five Think ETF's. We started as an independent company, but at the end of 2010 we struck a deal with Binck Bank to welcome them as a majority shareholder. The main reason for us was to more distribution power. In those days the market in the Netherlands was still used to kick back fees, so it was difficult to gain any momentum without any real distribution network. Fortunately, that changed a couple of years ago when local authorities introduced our Dutch version of a ban on retrocessions.
Can you go into the shape of the Netherlands market for us? How popular are they with investors? And what is the recognition factor for investors? Also, are they are institutional product or mainly retail?
MR: I guess there's a lot of issuers that have their ETFs available in The Netherlands. Through online brokers such as Binck Bank, Lynx and De Giro retail investors have access to all the usual suspects. Although the introduction of MiFiD II created some issues for ETFs without information documents in the Dutch language. It's very difficult to give a good estimate on the market penetration overall and divided by retail/professional but my guess would be that professional investors make more use of ETFs (especially in absolute amounts, but probably also percentage wise). Figures that resonate in the market are that 10 to 20 percent of overall assets are invested through ETFs (and index funds). So my guess would be that for the retail market it's probably around 10% and for the professional market around 20%. But these numbers could be a little outdated, and since the trend is upwards, they could be a little higher by now. So popularity is certainly rising, and that's mainly based upon the fact that ETFs offer exposure to different asset classes at low cost. But also, the fact that an investor can easily trade in and out of a position contributes to the increased popularity.
How far advanced is the ETF market in the Netherlands?
MR: I believe that we are close to the tipping point. People, both professional and retail, are becoming more knowledgeable on ETF's and start to use them more and more. But we certainly lag the developments in the US, hopefully we'll catch up in the coming years.
Is the Netherlands a big enough market for a single-country operator?
MR: Yes, I do believe so. At this point our main focus is still on The Netherlands but we've been modestly profitable since 2015. And we are still growing in the Dutch market. We do have more ambition, so we are starting to look at other European countries to expand our business, that will happen later this year.
What challenges do you face in terms of competition from other products? I know that there are issues in the Dutch retail financial sector with CFDs and their ilk.
MR: I think we've experienced some problems with companies that aggressively market leveraged investment products. Some of these use the term ETF in their Google efforts. I'm afraid some retail investors will be fooled by that and that's bad for business, both in the short and long term. A business like offering CFDs can be very profitable, so these companies have large marketing budgets and can attract a lot of customers. The problem in my opinion is, that these companies are so profitable because the fact their clients lose a lot of money. This may be comparable to the success of lotteries, there's a (small) chance that you actually win a lot of money and people are willing to take the risk of losing their investment because of that. I'm not against lotteries or betting, but I am against selling it as an investment product.
What are you hopes for the year ahead for Think ETFs?
MR: I hope we will be able to realize our European expansion plans, and I hope we will be able to continue to educate (retail) investors. Not only on ETF's, but also on the way they can help building a solid investment portfolio for the long term.
What are you views with regard to developments such as smart beta and how that might drive the market forward?
MR: I think some of these developments are interesting. Index investing is not necessarily only about market cap weighted investing. I think it's power lies in the rule based nature that eliminates emotion. And there's a lot of interesting ways to set up index rules. Personally, I'm a big fan of equal weight indexing. I think that one of the key drivers of performance in index investing is that you don't engage in stock picking. Market cap weight investing can be seen as a form of stock picking, that's why I like equal weight investing, that way you don't discriminate between stocks, you just invest the same amount in every selected stock.