Having accumulated a record $61.8bn of net new assets in 2014, the pace of money flowing into the European-listed ETF/ETP market is quickening, reaching $61.6bn (£40.2bn) by 30 September.
This represents a 30% jump on net new European ETF assets in the same time-frame last year, and it translates to a global perspective, with the US, Japanese and global ETF markets also seeing respective increases of 8.5%, 143% and 25% year-on-year.
Depending on who you ask, the European ETF space is projected to be worth between $1tn and $3tn within the next four years, and, extrapolating the current rates of inflows, the latter figure does not seem all that far off.
“The active versus passive debate has thankfully died down and people are now thinking more holistically about which instruments suit different environments,” said Ben Seager-Scott, director of investment strategy at Tilney Bestinvest.
“ETFs tend to do well when the outlook favours broad market movements; because of QE, for example. If there is not too much discrimination at a stock level then ETFs are good for getting cheap broad exposure, and they can also work well if you are making a tactical call and want to get short-term market exposure quickly.
“The European ETF market is behind the US, and we tend to use the US as a barometer of what might happen in Europe. However, Europe is actually leading developments in some areas, such as smart beta strategies, and broadly speaking investors are becoming more comfortable with using ETFs.”
While some investors choose to deploy ETFs as a core allocation with an active satellite fund, Richard Stammers, investment strategist at European Wealth, prefers an ‘inverted’ approach.
“We use an inverted core-satellite approach,” he explained. “The active fund is the core while the ETF is the satellite, which allows us to make tactical changes without having to delve too far into the underlying active fund.
“Holding an ETF as a satellite is a great way to get liquidity if you want to get in and out of a market quickly.”
Stammers prefers a 20/80 split in his passive/active allocation across his regional exposure except the UK. Utilising the iShares EURO STOXX 50 UCITS ETF for his European exposure, he believes that current market conditions are conducive to holding a passive vehicle.
