Europe's largest asset managers are on the hunt for “niche” ETF providers such as thematic and crypto exchange-traded product (ETP) issuers in Europe as they look to bounce back from a challenging year, new research has found.
According to Cerulli Associates’ annual survey, over a third of respondents are considering merger and acquisition (M&A) opportunities of “specialist” issuers as they look to enhance product capabilities.
So far this year, the European ETF industry has struggled to keep pace with the rapid growth of 2021 and had contracted in the first half of the year, according to Morningstar, in the face of rising inflation, central bank interest rate hikes and fears of a recession.
As a result, ETF industry players are considering several new strategies in a bid to fight against mounting headwinds.
Speaking to ETF Stream, Fabrizio Zumbo, director of European asset and wealth management research at Cerulli, said: “We could see new bolt-on acquisitions in the ESG, thematic and digital asset space.
“Smaller, niche and more specialised managers will be the target for larger asset managers that are trying to improve their product capabilities from a product distribution perspective.”
Despite this, the growth forecasts for thematic ETFs over the next two years were mixed. Roughly 55% of respondents expected moderate growth of 1-5% for thematic ETF assets under management (AUM), while 43% expect assets to grow by 6-10%.
There are also signs that asset managers will switch focus from launching ETFs to consolidating their current product ranges to make them more sustainable.
Cerulli found that 29% intended to review their product suite with a view to liquidating or merging ETFs, while a further 31% said they expected to continue to cut fees.
“Asset managers have been focused, at least until now, on launching ETFs. Many of these ETFs will not have reached the scale needed to produce sustainable markets and without the track record to be able to top the performance charts,” Zumbo said.
“Now, they are trying to rationalise their value proposition, with the fees being received not enough to make them worthwhile.”
Meanwhile, there is likely to be a strengthening of the ETF ecosystem over the next two years with more than half (54%) expected to make new partnerships with local distributors.
Across Europe, 40% of ETF issuers surveyed said they will focus their sales efforts on the German market, 20% on the Italian markets and 14% on the UK.
Zumbo added: “We see more diversity in the UK but we are seeing more interest in Germany. With their ETF saving plan in place, there is a lot of interest in that market.”