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European ETF Market: An Outline
By Paul Amery | 01 April, 2008

 

The explosive growth of exchange-traded funds is not just a U.S. phenomenon. While the U.S. is the largest market for ETFs in the world, Europe, Asia and Latin America all support fast-growing ETF industries.

In fact, in 2007, the European ETF market actually grew faster than the U.S. market, with total assets under management rising 43%. At year-end, European ETF assets totalled $128.4 billion, in 423 funds, while U.S. ETFs totalled $580.7 billion, in 601 funds.

This healthy rate of development is all the more notable for occurring in a year when the financial markets as a whole ran into the buffers: Equity markets peaked in the summer, and credit and derivatives markets were shrinking fast by year-end, a trend that has continued into 2008.

In this and future weekly features for IndexUniverse.com, I will be focussing on the European ETF industry, comparing and contrasting it with its U.S. counterpart, interviewing leading players, investigating the regulatory landscape and generally providing some regular comment on a very dynamic and still relatively underreported area of the financial markets. I would welcome readers' feedback, and in particular, suggestions for future articles-please leave comments on the Web site, or write to me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

The State Of The Market

Let's start by reminding ourselves of some of the most important characteristics of the European ETF market. Here, and elsewhere, I have included other exchange-traded products, such as exchange-traded commodities, in the overall calculation.

Top 10 European ETF Managers By Assets (Year-End-2007)*

Manager

#ETFs

AUM

($ Bln)

Mkt. Share

(%)

BGI/iShares

137

57.65

43.3

Lyxor AM

87

31.48

23.6

DB x-trackers

49

10.66

8.0

AXA/BNP

30

6.69

5.0

Credit Suisse

8

4.97

3.7

Crédit Agricole

3

3.02

2.3

XACT Fonder

9

2.51

1.9

ETF Securities

55

2.45

1.8

State Street Global Advisors

13

2.35

1.8

UBS

9

2.14

1.6

 

While Barclays Global Investors is the market leader in both Europe and the U.S. with its iShares brand, the other names in the European top 10 feature only one from the equivalent U.S. list-State Street Global Advisors (which is No. 2 by assets in the U.S. ETF market, but only a bit player in Europe). The relative lack of homogeneity between product providers in the world's biggest two ETF markets is surprising at first glance. As the ETF markets mature, there will likely be more overlap on these lists. Already, a number of U.S. firms (such as PowerShares Capital Management) are aggressively moving into Europe, and certain European advisors are eyeing the U.S. market. One firm, SPA ETFs, recently launched funds in both the U.S. and Europe simultaneously.

A notable entrant to the European top ten is Deutsche Bank, whose x-trackers range was launched early in 2007, and which ended the year as the third-biggest product range by assets under management.

Asset Class Split

It is interesting to compare the European and U.S. ETF markets by asset class. In the tables below, I have divided the asset exposure into four broad categories: equities (native region); equities (overseas/international); fixed income; and commodities (including ETCs and ETNs).

European ETFs*                          

Asset Class

Market Share (%)

Equities (Europe)

58.9

Equities (non-Europe)

19.1

Fixed Income

15.8

Commodities

6.2

 

U.S. ETFs*

Asset Class

Market Share (%)

Equities (US)

60.1

Equities (non-US)

27.6

Fixed Income

5.6

Commodities

6.7

 

A couple of things stand out. First, the overall proportion of the ETF market devoted to fixed income in Europe is higher than in the U.S. This seems to reflect the historical preference for bonds in continental Europe. Second, while both markets show a strong domestic bias, the ETF equity sector is less devoted to overseas investing (if one takes Europe as a whole) than in the U.S.

There are some other interesting differences, such as the relatively smaller weight given to style/sector equity ETFs in Europe than in the U.S., which we will explore in future articles.



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