On 27 November, BMO Global Asset Management (BMO GAM) announced it was closing its 13-strong UCITS ETF range, effective 21 January 2020.
The Canadian asset manager said the reason for the decision was due to low levels of assets under management (AUM) for the ETF suite, which only managed to capture €608m since entering the European market in 2015.
A few factors have driven the small flows. Firstly, smart beta products have not captured the imagination of European investors like they have in the US.
BMO’s ETF range primarily consists of enhanced-income strategies that look to add alpha to the index, however, the majority of flows into ETF products in Europe continue to go into the market-cap weighted vehicles.
Athanasios Psarofagis, ETF analyst, EMEA, Bloomberg Intelligence, added the firm was finding it hard to compete in the environment of fee cuts. Vanguard, which reduced charges on 13 ETFs and 22 index funds in October, is just one example of an ETF provider slashing fees this year
“It is much harder for the little firms,” he continued. “I think BMO saw the difficulty in competing and scaling up.”
Furthermore, Psarofagis added the bank was looking to focus on its Canadian business where they are the number two ETF provider and have stronger brand recognition.
Both James McManus, director of ETF research at Nutmeg and Ben Seager-Scott, head of multi-asset at Tilney, said it was a “real shame” to see BMO exit the market as they were offering a “genuinely differentiated” approach.
“This is a demonstration of…how difficult it is to reach critical mass in ETF products,” McManus added. “Unfortunately, the combination of creation costs for new strategies, and investors own concentration rules mean it is difficult for new strategies to reach critical mass without significant seed capital or initial demand.”
Seager-Scott cited the increasingly crowded European ETF market as the key reason for BMO’s decision.
Along with the well established players, JP Morgan and Goldman Sachs have both recently entered the market with smart beta products.
“BMO was seeking to develop areas of the market that were less well served, but simply failed to gain traction,” Seager-Scott added.