Data published by the fund analyst showed assets under management in the European ETF industry hit €267bn at the end of the third quarter, up 21.16% from the level seen one year earlier.
But there are signs that the industry is maturing and could begin to experience slowing expansion, Lipper’s head of Europe, the Middle East and Africa research Detlef Glow said.
“ETF promoters are closing funds that failed to reach their targets in terms of assets under management. There is even an increasing competition in terms of replication methodologies and overall product quality,” he explained.
Glow added that there are still some gaps in the EFT product map that need to be filled. Most of these gaps are in niche markets such as emerging market corporate debt, he noted, but these could eventually become important parts of the overall product offering.
In addition, the new generation of strategy indices – such as risk weighted or fundamental indexing – could lead to a plethora of products being developed and entering the market.
However, Glow pointed out that the industry needs to attract more investors alongside new developing new products if it is to maintain its strong growth rate.
He suggested that actively managed funds may increase their use of ETFs as they look for liquid instruments to use during transitions or for portfolio liquidity.Another area could be greater use by wealth managers as their clients become more keen to bring down total expense ratios.
Retail investors also could be an important contributor of ETF asset flows in the future, the commentator added, although they are unlikely to drive the bulk of the industry’s growth. And in order for this area to take off, it may require new distribution channels such as platforms to be opened.
Glow concluded: “From my perspective all of these movements and trends will lead to a changing landscape in the European ETF industry over the next few years.Some of these changes, such as increasing use of ETFs in the actively managed part of the industry, will go faster than expected.
“Others, such as the use of ETFs as direct investments in the retail world, will – despite such programmes as the introduction of the retail distribution review in the UK in 2013 – take much longer than expected.”
