Europe Surpasses the US With More Exchange Traded Funds
While exchange traded funds have been an established, widely used investment instrument for many years in the U.S., they have only acquired greater importance in Europe over the last number of years. Europe has now surpassed the U.S. and taken the title as the largest ETF market in the world in terms of number of ETFs.
European exchange traded fund assets have been pushed to an all time high of US$192.1 billion at end of August 2009, according to Barclay's Global Investors. This figure is 5% above the previous all time high of US$182.5 billion set in July 2009, and 20% above the high of US$159.9 billion set in July 2008.
In Europe, there were 751 ETFs with 1,889 listings, assets of US$192.1 billion from 33 providers on 19 exchanges at the end of August 2009. Net sales of ETFs were US$15.2 billion during the first six months of 2009. These statistics show that the demand for European ETFs is growing at a rapid pace.
Trends in the ETFs Space
The main drivers of European ETF growth is fixed income and emerging market ETFs. Emerging Market equity ETFs have seen the largest increase in assets growing by US$8.8 billion YTD to reach US$16.3 billion at the end of August 2009. Fixed Income ETFs grew by US$6.1 billion to reach US$46.9 billion at the end of August 2009.
According to db x-trackers, there has been an explosion in fixed income ETF assets under management (AUM) in Europe, with 250% growth in less than two years. 44% of this growth can be attributed directly to db x-trackers. Db x-trackers, Deutsche Bank's Exchange Traded Fund platform, raised €10 billion AUM in fixed income ETFs between June 2007 and February 2009.
Fund Managers Domicile of Choice for European ETFs
As with the traditional funds, there are a number of European jurisdictions such as Ireland and Luxembourg competing to be the center of choice for exchange traded funds. There are a number of factors that fund managers consider when deciding where to locate their ETF structure such as the availability of qualified personnel with ETF experience, favorable tax regime, the infrastructure in place and the time it takes to obtain regulatory approval for new products. Due to the cost sensitivities of the ETF's, favorable tax treatment tends to be high on the agenda for fund managers.
To date, Ireland has been the domicile of choice for cross border ETFs in Europe. Many of the big ETF industry players are located in this jurisdiction. This has resulted in Ireland having a market share of over 28% of the total European ETF market, with €36 billion as of July 2009, according to the Irish Funds Industry Association (IFIA). The overall European ETF market is €130 billion.