European ETF market: From niche to mainstream

The European ETF market has been a centre of financial disruption and innovation for over two decades amid the wrapper’s development from a niche product to a must-have tool in any investor’s arsenal.

The formative years of the market were defined by the dominance of European-headquartered players such as Lyxor – now Amundi – in France and Barclays Global Investors (BGI) in the UK. 

These asset managers – and subsequently DWS in Germany and UBS Asset Management in Switzerland – were able to embed into their local markets and gain significant assets under management (AUM) from local investors as well as from their own in-house multi-asset teams. 

These four ETF issuers – or the firms that have acquired them – are still the biggest players within the European market, a fact that highlights how difficult it has been to disrupt the space, especially for US asset managers. 

US giants enter

The easiest route for US giants has been through acquisition. In 2009, BlackRock bought BGI and its now world-renowned iShares business, a move that has been described by commentators as the ‘deal of the decade’.

Alongside the UK, this business already had a foothold in Germany following BGI’s acquisition of Hypovereinsbank in 2007 but the world’s largest asset manager truly revealed its European intentions in 2013 when it bought Credit Suisse Asset Management’s ETF arm, the fourth-largest ETF issuer at the time, which gave it a strong presence in Switzerland as well. 

Organic growth for SSGA and Vanguard

Furthermore, Invesco – which is now Europe’s sixth-largest ETF issuer – has also been aggressive through acquisitions. First, with the purchase of PowerShares in 2006 and in 2017, when the US giant acquired Source which was the eighth-largest ETF provider.

Two major US players – State Street Global Advisors (SSGA) and Vanguard – have been able to achieve significant growth without acquisitions. 

However, this owes to SSGA’s longevity in the market having launched its first ETFs in 2001 while the power of Vanguard’s brand, especially among retail investors, has enabled it to grow rapidly since its entry in 2012.

New European challengers emerge

The landscape is changing, however, with the likes of European giants such as HSBC Asset Management, abrdn, Legal & General Invest Management (LGIM) and AXA Investment Managers all launching ranges since the Global Financial Crisis (GFC), looking to leverage their deep history in the market to attract significant flows in the coming decade. 

Product development

Despite the dominance of European asset managers, it was Merrill Lynch which launched the first ETFs in Europe on 11 April 2000.

The US giant launched two ETFs tracking the Euro Stoxx 500 and the Stoxx Europe 50 on Deutsche Boerse.

This was followed by the launch of the first sector ETFs in 2001 from SSGA while Indexchange – now owned by BlackRock – unveiled the first fixed income ETF in 2003. 

BlackRock now controls over 60% of the fixed income ETF market in Europe. Meanwhile, a joint venture from BNP Paribas Asset Management and AXA IM – EasyETF – brought the first commodities ETF to market in 2005.

With an increasingly crowded ecosystem, differentiating is the key challenge for newer players looking to disrupt the market.

The growing popularity of thematic and active ETFs has given asset managers an entry point in recent years. 

The fragmented nature of the European market means it has been difficult to disrupt the old guard, however, with the introduction a consolidated tape and a retrocession fees ban on the horizon, there will be increasing opportunities for new entrants in the coming decade.