PIR tax ETFs are flavour of the month in Europe. The trend was set by Lyxor, but other issuers have cottoned on.

The PIR tax was introduced by the Italian government this year to help small and medium-sized Italian businesses attract investment.

The new tax was a watershed. It offered any fund that invested 70% of its assets in Italian stocks significant tax discounts. Specifically, it offers any fund that stays invested for 5 years or more a complete capital gains and income tax exemption.

ETF issuers were quick to respond.

Lyxor was the first to move. It just so happened that Lyxor already had a mid and small-cap Italian ETF (ITAMID) listed in Milan. While ITAMID had been listed for years, it had collected dust and no AUM. But that quickly changed.

With the PIR tax rollout, Lyxor rebranded ITAMID as a PIR tax ETF - rather than just an Italian mid-cap ETF. As a result, demand for ITAMID surged and AUM went from virtually zero to over $700 million in five months. So heavy was the demand increase that Lyxor and its market makers struggled to keep up.

Making things even better, the underlying index performed brilliantly, rising 35% in six months.

With the massive and speedy success, ITAMID was quick to draw admirers - and copycats.

Amundi launched a similar product, but into France (ITALI), which will list in late August. iShares also caught on and became the third issuer to launch a PIR tax ETF. Like Lyxor, iShares will be listing in Milan and its product (IPIR) will come at half the price. A concrete listing date for IPIR has not yet been announced.

What the future for these PIR tax funds will be is anyone's guess. But given their strong performance and solid business case, it looks like there'll be many more imitators - and more AUM - to come.