Postcard from Paris: ETFs sense ‘game changing’ moment in France

ETF Stream travelled to the French capital to learn more about the ETF wrapper's ascendancy

Paris postcard

ETFs appear to be having a moment in the French market. Demand has never been higher, with growth among retail and professional investors being driven by awareness and key regulatory tailwinds.

The number of French retail investors using ETFs increased by a third year-on-year from 166,000 to 216,000, according to Authorite des Marches Financiers’ (AMF) latest Active Retail Investor dashboard, while a recent report revealed ETFs now appear in half of all French life insurance contracts.

The French ETF market has reached a series of milestones in 2024, most notably the government’s greenlight for active ETFs to list for the first time, but find themselves with some catching up to do with an advisory market still structured towards mutual funds.

During a recent trip to Paris, ETF Stream spoke to French fund selectors and ETF issuers about why ETFs are becoming an integral part of the market.

Playing catch up

Despite their momentum, ETFs in France are playing catch-up versus the more mature markets on the continent, but Adrien Samuel-Lajeunesse, investment fund and ETF specialist at BNP Paribas Wealth Management (BNPP WM), senses this is changing.

“The proportion of ETF users is growing very quickly,” he said. “Some countries such as France have been late adopters where the market is driven by advisors, but the usage of ETFs is growing steadily.”

As well as having a growing influence over BNPP WM’s portfolios, Samuel-Lajeunesse believes the product’s big opportunity lies in French life insurance contracts.

Traditionally, ETFs have struggled for uptake in the life insurance saving wrapper due to distribution challenges.

“You would need to set up an ETF in a classic fund format which not all insurers are ready to do because of minimum size and lack of interest,” he said. “But the proportion of ETFs is growing and that will be a gamechanger for the wrapper.

“The day all life insurances are open to ETFs we will see very significant inflows coming in.”

Another area driving growth is retail. Lorraine Sereyjol-Garros, global head of ETF and index sales team at BNP Paribas Asset Management (BNPP AM), said there is a huge amount of interest from this portion of investors to use ETFs in their savings plans.

“My guess is that [retail investors] will go for ETFs as they are cheap and there are plenty of platforms offering them,” she said.

According to BlackRock, France, Belgium and the Netherlands could have over one million new ETF investors by the end of 2024.

Interest can also be seen via the type of products coming to market. In April, BlackRock launched the iShares MSCI World Swap PEA UCITS ETF (WPEA) eligible for the Plan d’Epargne en Actions (PEA), a regulated savings plan similar to an ISA in the UK.

Investors who hold investments in a PEA for longer than five years do not pay capital gains tax while earned income is also free.

Cost pressures

Regulatory drivers are also having an impact. The EU’s incoming ‘value for money’ rules mean fund selectors are having to pay much more attention to the cost of their offering.

Antoine Ternon, multi-asset portfolio manager at APICIL Asset Management, said low fees are one of the main reasons for the growth of ETFs in his portfolio, alongside diversification and access to broader thematic offerings.

“We were a bit concerned about the ‘value for money’ rules, but low tracking error ETFs have helped us keep costs down,” he said.

Samuel-Lajeunesse agreed the regulation is likely to be a boon for the ETF market in France. “Regulatory pressures with a focus on cost and efficiency will also clearly favour ETFs,” he said.

Active ETF milestone

Another area primmed for growth is the active ETF space. In February, the French government updated its finance code to allow active ETFs to be listed on the Euronext Paris for the first time.

Sereyjol-Garros said the listing was a milestone for active ETFs and a huge bonus for local distributors.

“Many [local distributers] do not like to trade on a non-local exchange, either because they cannot or simply because they want to stay within the local business with local clients. It will help us to develop our business there,” she said.

She added the group plans to launch 10 more ETFs by the end of 2024 including active equity strategies.

AXA Investment Managers was one of the driving forces behind the active ETF approvals, working closely with a French regulatory body AMF and the AFG, the French association of asset managers.

Following the approval, AXA IM was among the first to list its active ETFs on the exchange.

Olivier Paquier, global head of ETF sales, said: “Investors favour local stock exchanges in their investment choices, so it was key for us to adapt to the needs of our French customers.

“International investors look closely at European stock exchanges and appreciate when ETF providers are multi-listed.”

Samuel-Lajeunesse added BNPP WM has been upping its use of active ETFs, noting the ever-blurring line between passive and active, but still has an element of caution for now.

“We have been looking at active ETFs, but it is more work to onboard these types of products,” he said. “You have to assess how they are structured, the team managing the portfolio and what are the risks of the specific entities.

“We have adopted three different products so far and we are being a bit cautious. Actives can help in a space where liquidity is trickier, but we have even seen active ETFs on exposures benchmarked against the MSCI World do a great job.”