Money managers under the microscope
Rude health, and a changing of the guard?
By Detlef Glow, Head of EMEA Research at Lipper. The views expressed are his own.
The European exchange-traded-fund (ETF) industry has shown some resilience in the face of questions about management practices raised by market observers like the Financial Stability Board (FSB) and regulatory bodies like the FSA in the UK.
The segment grew by 7.74 percent over the first seven month of 2011, with assets under management up by 17.20 billion euros to reach 239.37 billion.
This has come as some critics have characterised ETFs as a systemic risk for financial markets, due to the use of swaps to replicate the underlying index. Another risk that has been highlighted was the liquidity of some securities accepted as collateral to secure the positions in derivatives and for security lending strategies. Also raised was the outstanding short volume in some ETFs.
But as the ETF industry is fully regulated by market authorities and uses typical techniques for derivatives and securities-lending strategies, the risks highlighted are already known. In addition, the assets under management of the global ETF industry are still less than ten percent of the total, and the issues might be better raised with respect to all funds, instead of pointing the finger at one market segment.
Despite publicity surrounding these issues, and in contrast to the expectations of some market observers, the industry has shown a pretty normal growth pattern in terms of newly-launched funds, with 167 new products hitting the market during the first half of 2011. Most of those were equity funds (102), with commodity funds a significant minority (22).
There might be some shuffling of the pack, however. IShares is still the leader, way ahead of the other ETF promoters. But since July 2011 the second largest promoter in Europe is Deutsche Bank’s db x-trackers, which has overtaken Societe Generale’s Lyxor in terms of market share.
The race for second place in the European ETF industry has been touch-and-go for a while. Lyxor started reshuffling management and sales teams in the spring of 2010 but couldn’t fend of Deutsche’s push. Nevertheless, the difference in assets under management between Lyxor and db x-trackers is very small, so the race will continue in the future.
A healthy rivalry, you might say, and a sign of an industry displaying healthy growth patterns. And you can add to that mix the positive effect of new players like Ossiam entering the European market.
The industry still has a decent story to tell, even if ETF providers were caught unawares by the spotlight suddenly turned on their industry. And it’s true that there might be some hurdles to jump now that regulators’ gaze has fallen on ETFs: perhaps we’ll see some restrictions in the use of securities as collateral; and a further effort to boost transparency.
(Editing by Joel Dimmock) ((email@example.com)(Twitter: @reutersJoelD)(+44 20 7542 3505))