GS Goldman Sachs Group Inc

By Tanzeel Akhtar 

The European appetite for exchange-traded funds, though well behind that of investors in the U.S., continues to grow. New products and the entry of new categories of investors have been a boost, experts say.

While the European market is still dominated by a few big firms, Deborah Fuhr, managing partner at ETFGI, a research and consultancy firm based in London, says there are now 64 issuers of ETFs in Europe. Recent entrants include JPMorgan Chase and Index IQ from the U.S., andVanEck Associates has just bought Dutch ETF issuer Think ETF Asset Management.

BlackRock Inc.'s iShares led ETF issuers in Europe in terms of assets under management at the end of February with a 44.4% market share, followed by DB Xtracker at 10.7%, Lyxor at 9.4%, UBS with 6.1%, Amundi at 5.8% and Vanguard at 4.6%.

Total assets invested in ETFs and exchange-traded products listed in Europe at the end of 2017 were $802 billion, up from $573 billion a year earlier, Ms. Fuhr says. Assets listed in the U.S., meanwhile, stood at $3.4 trillion at the end of February.

Ms. Fuhr's firm predicts that by 2020, ETF assets will reach $1.2 trillion in Europe, $6.4 trillion in the U.S. and $8.9 trillion globally.

Dave Nadig, chief executive of ETF.com, a New York-based research firm, still sees fundamental differences between the U.S. and European ETF markets. For one, he says, the ETF market in Europe is more stable in terms of the pace of new-product launches.

For example, he says, whereas in the U.S., "there is the opportunity for people to put out a blockchain-related ETF and attract hundreds of millions of dollars very quickly," the European market is much more institutionally driven and so is "a little more thoughtful. The issuers want to make sure they have a solid market before a launch."

Other ETF industry experts as well say that unlike in the U.S., the market for ETF investments among European investors is more determined by professionals and institutions than it is by individuals looking to chase hot themes.

"European investors are much more likely to use an adviser or wealth manager -- and this is where we see the most growth," says Adam Laird, head of ETF strategy for Northern Europe at Lyxor ETF.

Todd Rosenbluth, head of ETF research for CFRA, an independent New York-based research firm, says that while the U.S. market for ETFs also is still dominated by a handful of issuers, in recent years there have been more new entrants in ETFs in the U.S. than in Europe, including asset managers such as Goldman Sachs, JPMorgan Chase and John Hancock offering "smart beta" products, a hybrid of passive and active investing. Other new entrants that see opportunities to gain a slice of the ETF pie are Exponential ETFs and GraniteShares.

Mr. Nadig says there are still infrastructure issues that pose challenges for European ETF trading; for example, most ETF trading in Europe happens in so-called "dark pools," in which bid and ask prices for the ETFs' underlying assets aren't disclosed, unlike in the U.S. But Mr. Nadig thinks this will change.

Meanwhile, he says, the U.S. could learn from Europe in terms of adopting more sensible ETF regulations. In the U.S., he says, rules protecting ETF investors "are convoluted and unclear," and launches of new products are burdened by an "endless pile" of disclosure requirements and exemptions.

By contrast, he says, European Union rules governing ETF document disclosures and protections for investors offer more transparency.

Says Mr. Nadig, "I think we can learn something from that."

Ms. Akhtar is a writer in London. She can be reached at reports@wsj.com.

(END) Dow Jones Newswires

April 08, 2018 22:15 ET (02:15 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.