Germany and the UK are the two largest ETF markets in Europe, however, developments in the two countries over the past two years could not have been more different, especially when it comes to the rise of retail investors.
In Germany, the growth of retail investors using ETFs since the coronavirus turmoil in March 2020 has been nothing short of remarkable.
There are now 4.9 million people invested in ETF savings plans, up from 1.9 million at the end of 2019, according to data from BlackRock and extraETF, as self-directed investors start accessing the stock market through ETFs for the first time.
BlackRock has now forecasted there will be 20 million people making monthly contributions to ETF savings plans by 2026, a vast increase in a market that now has the biggest ETF share in Europe with 27% of assets under management (AUM).
While the UK is only just behind Germany with a 25% market share, according to data from Blackwater Search & Advisory, this is dominated by institutional investors.
Retail adoption has been lacklustre at best as highlighted by a recent survey conducted by WisdomTree which found only 22% of retail investors said they invest in ETFs while some 19% said they have never heard of them.
The depressing figures reveal how far the UK is behind Germany both in terms of financial literacy and the structures in place to enable the growth of ETF adoption among retail investors.
As Adria Beso, head of platforms distribution sales for Europe at WisdomTree, said: “Confidence in knowing how and why to invest in ETFs is low, leading to a lack of investment despite the fact they are easily traded, offer diversification and more transparency, and are low cost, all of which are important in the current economic backdrop.”
Furthermore, he stressed the availability of ETFs on retail platforms is low while there is a significant lack of education.
“There is a real lack of knowledge of what is available,” Beso told ETF Stream. “Many retail investors in the UK still favour single stocks or other investment vehicles.”
His views were echoed by James McManus, CIO at Nutmeg, a UK digital wealth manager, who said traditional retail investment platforms offer stock and fund research but limited asset allocation perspectives.
“ETFs are arguably often best used in asset allocation, an activity that is not easy for individual investors to get right, but one we know is critically important in generating good risk-adjusted returns in the medium term.
“Asset allocation becomes a secondary consideration to which funds or stocks seem most attractive for many individual investors, arguably because of the way these assets are marketed through platforms,” McManus continued. “That ignores the evidence that this is the key decision investors should be focusing on when investing in order to manage their risk.”
ETF issuers, investment platforms and even financial publications can all do a better job of educating the market and highlighting the role ETFs have to play within portfolios.
Ultimately, the UK market has traditionally been dominated by mutual funds, investment trusts and single stock trading, however, as investors start to realise the benefit of ETFs, the market should start to see the same growth Germany is experiencing currently.