Reports of the death of the European exchange-traded fund (ETF) market are greatly exaggerated, following a dramatic fall in growth in 2013. An evolving distribution landscape and an increasingly cost conscious investor base could revive the sector's fortunes, according to the February edition of The Cerulli Edge-European Monthly Product Trends.
Last year, net new flows (NNF) to European ETFs slumped 25% to €13.8 billion (US$18.9 billion), down from the €19 billion seen in 2012. It was a far cry from the heady days of 2008 when inflows hit more than €52 billion.
"Those predicting the European ETF market's demise say it only prospered as a result of the financial crisis as investors fled derivatives and sought the relative safety of ETFs as a fast and effective way of gaining exposure to an index," noted Barbara Wall, Cerulli's Europe research director.
"They say ETFs are proving less attractive now that the markets are on a firmer footing. However, enthusiasts of European ETFs point to an inflow of €1 billion in January 2014, bucking the worldwide trend of outflows for that month, and suggesting a better year ahead."
Consistent inflows last quarter helped ETFs erode the passive marketshare held by trackers, by 0.6%, to 55.6%.
Angelos Gousios, a senior analyst at Cerulli Associates, believes cost and transparency are material considerations for the ETF sector. "Total expense ratios have even been as low as 0% for ETFs, with providers being able to generate income by enhancements such as dividend optimization," he noted. "However, the industry needs to promote simplicity and transparency in a market that has grown too complex."