A potential merger of Invesco and State Street Global Advisors (SSGA) would create a new European ETF behemoth with a broader product line-up and advantages in trading and smart beta.
Last December, Bloomberg reported the two US giants were lining up a potential merger amid rumours State Street was considering selling its $3.1trn asset management business.
According to a Bloomberg Intelligence report, the combination of the two ETF arms would reduce their respective dependence on fan-favourite ETFs such as SSGA’s SPDR S&P 500 ETF Trust (SPY) and Invesco’s QQQ strategies, making the combined firm less vulnerable to changes in individual product performance and flows.
A product transition would also occur smoothly, given the lack of overlap between the two product line-ups based on assets linked to specific index providers. In fact, the merger would allow the joint entity to fill gaps in their product rosters and diversify on index provider with SSGA having the bulk of its assets tied to S&P Dow Jones Indices while Invesco has strong links with Nasdaq, for instance.
Crucially, though, the coupling would intensify competition to fill the top three positions for European ETF issuer assets under management (AUM).
According to data from Morningstar, Invesco and SSGA pulled in €8.5bn new ETF assets in H1, taking the combined AUM to €98bn. And while this is well short of iShares’ €36.6bn intake, it is not in a completely different league to Xtrackers’ €10.2bn haul, nor Amundi-Lyxor’s combined €10.4bn.
These numbers also do not account for the potential boost tapping into economies of scale would offer including deeper liquidity provided by a greater share of ETF trading along with combined marketing and distribution efforts.
Speaking on the potential benefits of the merger, industry veteran and Invesco’s former global head of ETFs Ben Fulton, said: “The merged company would have the broadest global ETF product line-up.
“Distribution would be vastly improved, and you could argue that only BlackRock and [Invesco-State Street] would be the only Big Box retailer of ETFs.
“Also, the combination would boast partnerships with Research Affiliates, Dorsey Wright, S&P Factor Family and BulletShares, which would in turn enhance their behemoth big beta ETFs.
“With the continued explosive growth in ETF industry assets, firms will need as many buckets as possible and in every location known, to maximise the amount of rain or money caught. This would do the trick.”
Regarding the odds of this kind of merger happening, Fulton said Invesco’s preferred route for AUM growth has typically been to buy its way upwards, rather than focus primarily on product distribution.
In the past, the firm has acquired Source, PowerShares, Oppenheimer, Guggenheim ETFs and Van Kampen, evidencing its buy-over-build approach.
This aggressive approach is also demonstrated by its share price tripling in the last two years, Fulton said. And while their market cap is still low versus the size of their product range, the addition of SSGA would certainly see Invesco shift up a gear in terms of scale.
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