ETFs

Fund managers are beefing up their exchange-traded fund (ETF) ranges, to judge from a recent flurry of product launches. Luxembourg’s fund industry faces a dual threat: these ETFs launched in Ireland and are taking market share from traditional Ucits mutual funds, its core product.

Both Paris-based AXA Investment Management and Boston-based Fidelity Investments have recently launched products offering active management and research at a lower cost.

EU-domiciled Exchange Traded Funds, or ETFs, are growing at twice the speed of traditional Ucits funds, demonstrating continued appetite among investors for passive and low cost investment vehicles, a deep dive by PwC Luxembourg shows. Meanwhile, Denmark has emerged as Europe’s top target market for ETF distribution.

In Europe’s two largest ETF hubs, Luxembourg and Ireland, different rules govern the naming of Exchange Traded Funds (ETFs). While European rules for ETF naming conventions are determined by Paris-based authority ESMA, the implementation by national supervisors CSSF in Luxembourg and CBI in Ireland diverges, presenting both opportunities and risks for ETF providers.

Ireland has cemented itself as the biggest international ETF domicile – leaving challengers such as Luxembourg having to play catch up. Some Dublin-based fund specialists, however, believe that Luxembourg is not entirely left without options.

Franklin Templeton on Monday said that all 21 Ucits ETFs from its Icav range have become available to Luxembourg investors in response to growing client demand for ETF solutions.

As many as 70% of the ETFs touted as the most sustainable in their class by the fund companies that offered them have been downgraded in one year. Rather than aiming for sustainable investment, passive funds were found to incorporate only one ESG factor.

The global market for Exchange Traded Funds, better known as ETFs, is projected to more than triple in the next ten years to reach 30 trillion dollars, says Brown Brothers Harriman in a new study it releases today. Developments in this market are closely watched in Luxembourg, Europe’s second-biggest hub for ETFs. ETFs are increasingly finding their way into institutional portfolios, concludes BBH in its annual survey of 325 institutional investors, financial advisors and fund managers from the US, Europe and China.

European Ucits and AIF investment funds experienced net outflows of 278 billion euro last year, the biggest level since the financial crisis of 2008, according to industry statistics compiled by the European Fund and Asset Management Association, Efama.

Index products have seen significant inflows at the expense of active products, reflecting increasing interest from both institutional and retail investors. The outlook for Europe remains positive in the coming years. Bond ETFs in particular still have strong growth ahead of them.

Last year was a tough one for financial markets, and the ETF segment was not left behind as assets under management - at the global level - fell for the first time since 2011. 

Of the European assets flowing into ETFs last year, a higher proportion went to trackers with ESG labels than trackers without that sustainability feature. Sustainable fixed income ETFs were particularly popular in Europe.