Europe is on course to see a record number of ETF closures this year as ETF issuers streamline their ranges amid a challenging market environment.
According to data from Refinitiv, there have been 272 ETF closures so far this year, as at the end of October, which is on course to beat the previous record of 289 set in 2016.
High assets under management (AUM) is the key driver of an ETF’s longevity with strategies far more likely to shut if they fails to attract significant inflows.
With issuers in Europe launching ETFs at a rapid rate, the ones that do not meet investor expectations are closed due to a lack of profitability.
There are currently 826 ETFs in Europe with over €100m AUM accounting for 48.9% of products available but 96.6% of the overall AUM.
As Detlef Glow, head of Lipper EMEA research at Refinitiv, explained: “A possible reason for the high number of ETF closures over the course of 2020 so far might be a lack of profitability of the respective ETFs.
“Within the current market environment, a number of ETF promoters are reviewing their product ranges for products that have a lack of profitability or might be out of fashion, as margins and, therefore, overall profits in the asset management industry come under pressure for various internal and external reasons.”
Glow added the consolidation taking place across the European ETF industry, most notably Lyxor’s acquisition of Commerzbank’s ComStage range which completed last November, was not a key driver for the closures.
“I would not interpret the numbers in that way,” he continued. “From my point of view, the high number of ETF closures in Europe goes in line with high launching activity.
“Since not all of the new products end up meeting investor expectations, they are closed after a period of time.”