Industry Updates

ETF Wrap: Cathie Wood bets big on European retail investor ETF adoption

ARK entering European ETFs, Indian sovereigns being added to EM benchmarks and DWS innovating creation-redemption made headlines this week

Jamie Gordon

ETF Wrap

ARK Invest has made inroads into European ETFs with its acquisition of thematic specialist Rize ETF, a move that sees founder, CEO and CIO Cathie Wood go all in on the European retail growth story coming to fruition.

ARK announced the £5.25m buy-out of Rize from AssetCo on Tuesday night, with Rize ETF to be rebranded ARK Invest Europe. ARK and AssetCo will also partner on ETF launches by AssetCo portfolio company River and Mercantile.

While many see the move as the first of many potential acquisitions by US firms taking advantage of opportunities for potential consolidation among Europe’s smaller issuers, it is worth considering what the deal actually represents for ARK. 

Kenneth Lamont, senior research analyst, passive strategies, at Morningstar, argued the acquisition is a “somewhat opportunistic” attempt to stem “persistent outflows” across its US-domiciled range – with all but one product seeing outflows so far in 2023.

“By entering the European market, ARK will hope to expand the potential customer base for its existing strategies,” Lamont said.  

However, if ARK – at least initially – decides to bring over existing active strategies such as the Ark Innovation ETF (ARKK) to Europe, the firm will likely be hunting for traction among retail investors.

Andrew Limberis, investment director at Omba Advisory & Investments, noted ARK could bring newfound scale to the Rize ETF roster, potentially tightening spreads and pushing some past buy list minimum asset thresholds. 

On the other hand, ARK relaunching its own products in Europe may not mean much for professional investors, who can already access the ETFs as they are at sufficient scale and US or Europe domiciling is not a barrier. 

“ARK ETFs have always been in our ETF universe as we do buy US ETFs but we have not invested in any to date,” Limberis said.

While some believe Wood has timed ARK’s Rize ETF gambit perfectly to spearhead the wave of active ETF launches in Europe, others believe she has missed the opportunity to ride the buzz surrounding the future themes which dominate the ARK roster.

Lamont added: “Arguably this move has come too late as the European ETF market approaches maturity and Cathie Wood’s star continues to wane.”

Should ARK choose to import equivalents of ETFs including ARKK to Europe, it might look to tap some early demand for Wood’s management style currently captured by ARK imitation strategies including Leverage Shares short and leveraged exchange-traded products (ETPs), the Avanza Disruptive Innovation by ARK Innovation and Nikko AM ARK Disruptive Innovation fund, the latter of which houses €2.5bn assets. 

Outside of this initial buzz, the hunt for future clients will be contingent on a broad shift in investing culture in Europe – towards retail investing and ETF adoption – as the precursor for Wood’s personality brand to garner the same degree of notoriety it has mustered in the US.

India enters JPM EM bond index 

India has been added to the JPM GBI-EM Global Diversified index in a major boost to the second largest emerging market government bond market. 

The move follows the inclusion of China government bonds in 2021 and comes after the Reserve Bank of India introduced to Fully Accessible Route (FAR) bond market in 2020, which allows international investor access to the country’s sovereign debt and has since grown to a size of $400bn.

Morgan Stanely previously predicted inclusion in the GBI-EM benchmark could drive as much as $30bn inflows into the market and more than $170bn over the next decade.

Previously, FTSE Russell was also said to have put Indian sovereign debt on its watchlist for inclusion in its own indices.

DWS can FIX it 

DWS launched Financial Information eXchange (FIX) connectivity for its authorised participant (AP) portal to streamline ETF creation-redemption, ETF Stream revealed this week.

FIX connectivity facilitates a direct connection between ETF issuer and AP order management systems, providing automation across primary and secondary markets and reduced operational risk.

DWS dubbed the move a first for Europe that will increase market efficiency by creating sharper pricing, with the same mechanism having been available in the US for a several years. 

If multiple ETF issuers adopt FIX, the need for APs to log into each issuer portal to place orders will be replaced by “duplicate functionality to the primary market”. 

DWS said “the majority of primary market orders” will be placed via FIX in future.

ETF Wrap is a weekly digest of the top stories on ETF Stream


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