The majority of European mutual fund managers are unconcerned about the exponential growth of ETFs and have no plans to launch an ETF business anytime soon, according to a survey conducted by Blackwater Search & Advisory.
The survey, which interviewed over 100 mutual fund asset managers without an ETF offering, found 82% do not see ETFs as a threat to their business despite the rapid increase in demand since the Global Financial Crisis (GFC).
Meanwhile, 73% of respondents said they do not see a business case for offering ETFs while 91% revealed they will not be launching an ETF range in the next two years.
The key barriers to starting an ETF business included regulatory requirements for daily disclosure of portfolios (27%), while 23% cited lack of in-house expertise and too much competition, respectively.
Source: Blackwater Search & Advisory
While regulatory steps have been taken in the US to allow non-transparent ETFs to market, the Central Bank of Ireland is yet to make the same move this side of the pond.
Despite the hurdles, some 55% of respondents predicted their competitors would launch an ETF range at some stage.
Michael O’Riordan, founder of Blackwater Search & Advisory, commented: “While there is an overwhelming view that mutual fund managers believe ETFs are not a threat to their business, they equally think that ETFs will continue to grow.
“Presumably, they feel that this growth will come outside of the traditional mutual fund pool and so will not impact their profit margins.”
Mutual fund liquidity mismatch pushing investors to ETFs
Respondents argued the retrocession fee model in Europe – an issue that does not exist in the US – was the key issue with 36% highlight this. Some 23% pointed to no clear tax benefit for investors over mutual funds and the lack of self-directed investors.
Source: Blackwater Search & Advisory
“The overwhelming consensus appears to be that whilst acknowledging that ETFs are growing, mutual fund managers do not perceive the ETF vehicle as a threat to their own business,” O’Riordan continued.
“We often hear the argument ‘the reason we do not offer ETFs is because our clients are not asking for them’. That is a fair enough reason in isolation, but will the same hold true in five years, 10 years’ time?
“Short-termism is not a new accusation labelled upon the asset management industry and therefore we would not be surprised if there was an element of truth to the above statement in terms of how the industry is behaving in relation to ETFs.”
