Cerulli: A standard ETF proposition will no longer capture flows

Cerulli

ETF issuers in Europe need to become more innovative or risk losing assets to rivals, according to a report by research and consulting firm Cerulli Associates.

The report said this is being driven by new players in the market and the increasing competition the traditional ETF issuers face.

Last month, Goldman Sachs Asset Management finally made its much-anticipated entry into the European space with the launch of one of its US strategies, the Goldman Sachs ActiveBeta US Large Cap Equity UCITS ETF (GSLC).

While other US players such as JP Morgan Asset Management and Franklin Templeton have started their European push in the past couple of years.

“Nowadays, a standardised value proposition may no longer be enough to capture flows,” Fabrizio Zumbo, associate director, European asset management research at Cerulli said.

Zumbo stressed ETF issuers must consider specialised and diversified offerings in areas such as environmental, social and governance (ESG), thematic and smart beta.

According to a Cerulli survey, 39% of European asset managers expect smart beta products to grow rapidly in the institutional space while 44% are predicting moderate growth.

Thematic ETF launches, in particular, have been a major trend this year with a number of players expanding their ranges including Legal & General Investment Management (LGIM) and BlackRock.

“We expect demand for ETFs from advisers to rise in tandem with the increasing adoption of ETFs as building blocks for portfolio construction,” Zumbo continued.

“Direct-to-consumer platforms and robo-advisers are also set to boost demand for ETFs among retail clients.”

Due to market conditions, demand for ETFs across non-equity asset classes is on the rise with fixed income ETFs accounting for more than 91% of net new flows in the first half of the year.

“Bond ETFs continue to gain traction,” Zumbo said. “Our comparison of European equity and bond ETF assets from the beginning of 2017 to the middle of this year confirms that bond ETF assets grew strongly in the first half of 2019.”

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