The dramatic rise of ESG investing over the past few years has led to a new type of strategy hitting the European ETF market, a range of ETF of ETFs.
Last week, the world’s largest asset manager BlackRock launched three multi-asset ESG ETFs which will select strategies from the firm’s iShares range making these products the first ETF of ETFs in Europe.
These strategies provide socially-conscious DIY investors with a way of gaining exposure to a range of ESG ETFs for just 0.25%.
Commenting on the strategies, Mark Northway, investment manager at Sparrows Capital, said: “[The launches] take the fight to Vanguard in both the advised and unadvised markets.”
Being model portfolios, BlackRock, like Vanguard, is competing directly against wealth managers to gain assets from retail investors and could be a sign of the direction of travel for ETF issuers.
Firms such as Nutmeg and SCM Direct also offer ESG model portfolios comprised solely of ETFs so it will be interesting to see what impact a giant such as BlackRock has on the space.
Unlike wealth managers, Europe’s largest ETF issuer is able to leverage its sales network throughout the whole of the European market, a key advantage for asset managers.
However, where these strategies may fall down is the far smaller retail uptake of ETFs this side of the pond. Retail investors have been a tough market to crack for ETF issuers in Europe with institutional investors still accounting for approximately 85% of all European ETF trading, according to the London Stock Exchange.
Although there are signs this is slowly starting to change, actively-managed model portfolio ETFs are very much unchartered territory for issuers in Europe so it will be interesting to see what sort of demand is there.
As Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, cautioned: “Single ticker complete solutions sound great on paper but have not really been a huge success in general, so I am a bit sceptical on the growth potential for these.”