Research report “ETFs and fragmentation” – latest edition in the “What’s next for funds?” series

20.11.2017

The factors behind the strong growth of Exchange Traded Funds (ETFs), insights into the investor base favouring this asset class, but also the challenges due to a fragmented European ETF market were covered in the latest survey of 124 fund professionals carried out by funds europe in association with Clearstream. The report is the second in the “What’s next for funds?” series launched earlier this year.

As a flexible, transparent and low cost asset class, ETFs have a broad appeal and the majority of survey participants forecast an annual growth rate between 10% and 20% in Europe. The survey has further shown that ETFs are meeting the needs of an increasingly sophisticated investor community including active fund managers using ETFs more and more as part of their portfolio allocation.

Key survey findings include:

  • Investor category ‘mass retail’ to gain most from investing in ETFs
  • Low fees are key for attracting ETF investors
  • ETFs not suitable for investing in illiquid assets such as real estate
  • In Europe, asset managers are biggest buyers of ETFs rather than individual investors
  • European ETF market - by being spread across many exchanges – is too fragmented

Philippe Seyll, Co-CEO at Clearstream Banking S.A. pointed out: “At Clearstream, volumes of ETF assets under custody have grown five times over the past five years which further confirms the strong demand for these passively managed and extremely versatile instruments. As a market infrastructure, we addressed the ETF market fragmentation issues in Europe by expanding our cross-border funds processing platform into multi-listed ETFs. That way, we facilitate transactions in ETFs listed in multiple exchanges, without complexity for the client.”

ETF solutions catering for all investor types

With more than a 50% share of the European custody market of this asset class, Clearstream has developed ETF solutions from trading venue to settlement and custody and acknowledges that each investor type has a preferred order mechanism.