The challenge faced by small issuers trying to corner part of the market was examined this week, with innovative players struggling to maintain a foothold even in nascent thematic and active ETF exposures.
In thematics, smaller issuers accused large players, including BlackRock, of ‘copycatting’ their best ideas after the firm’s delayed entry to metaverse, defence and copper mining ETFs.
Interestingly, BlackRock was the first to file a UCITS defence ETF in 2018 but held fire until products from VanEck and HANetf started gaining traction after launching last year.
Smaller ETF issuers warned large players benefit from vast internal and external distribution networks, and smaller providers need to be rewarded for their innovations or they will cease to exist.
Elsewhere, in Europe’s nascent active ETF space, the market is already dominated by mutual fund giants, wrapping their existing strategies within ETFs.
Leading the charge is JP Morgan Asset Management, which has cornered 43% of the market since entering in 2018, and claimed 78% of all active ETF inflows in Europe last year.
Algorithms for fragmented markets
A report from BlackRock suggested algorithmic ETF trading could help navigate the fragmented European ecosystem and offer benefits such as reduced trading costs, improved sourcing of liquidity and minimising the premium impact on large trades.
However, ETF execution is currently dominated by RFQ platforms, which accounted for 55% of trades in 2022, versus 5% for algos.
While the opposite is true in cash equities, where 65% of trades are done using algos, perhaps increased usage in ETFs will be a driver of future volumes on-exchange.
BNPP AM enters actives
Finally, ETF Stream revealed BNP Paribas Asset Management entered the active ETF space, with two ESG fixed income strategies looking to minimise tracking error rather than generating alpha.
Having previously partnered on custom ESG indices, the firm said its new ETFs are nimble enough to implement its proprietary ESG methodology and exclude controversial issuers without having to wait for index rebalances.
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