European ETF Market Poised For Growth

April 20, 2021

Key Takeaways

  • With $1.4 trillion in ETF assets, Europe has a large but disaggregated market with multiple cross-listings.
  • Fund sponsors are jockeying for market share, with Amundi’s (AMUN) bid for Lyxor potentially vaulting it to the No. 2 spot by assets. In Europe, the ETF sponsor league table is more fluid and less top heavy than in the U.S.
  • Europe also has a more balanced asset mix in ETFs, with 35% in nonequity products, compared to just 21% in the U.S. In addition, the ecosystem is complex due to multiple listing venues, domiciles and currencies, with 70% of primary listings having at last one cross-listing or share class variant.
  • Having comprehensive data is critical to tracking the evolving European ETF universe. In April 2021, CFRA announced an expansion of our data set to include constituent holdings coverage and categorization for all Europe ETFs.

Large But Disaggregated Market

With $1.4 trillion in ETF assets, Europe is the second largest region for ETFs globally. Although significantly smaller than the approximately $6 trillion U.S. market, Europe is growing in importance as investors across the continent adopt the ETF product structure.

However, one of the challenges it faces is that the market is relatively disaggregated. As of the end of February 2021, Europe had 2,356 primary ETF listings, comparable to the U.S.’ 2,442. But these ETFs are cross-listed across multiple exchanges, often in different currencies, despite the UCITS regulatory framework that facilitates cross-border offerings.

As a result, there is significant product proliferation, with a total of 8,487 ETF listings across 30 European listing venues. This is in contrast with the U.S., where ETF listings are concentrated on three primary equity exchanges.

 

Figure 1: ETF Listings & Assets by Region

Region Total Listings Primary Listings ETF Assets ($M)
Africa 161 158 27,183
Asia-Pacific 2,822 2,602 1,082,069
Canada 1,075 873 215,355
Europe 8,487 2,356 1,393,728
Latin America 555 47 13,265
U.S. 2,442 2,442 5,730,418
Total 15,542 8,478 8,462,018

Source: CFRA’s ETF Database; data as of February 2021

 

Despite this fragmentation, the ETF industry in Europe has grown at 20% annually in the last five years. This opportunity has prompted various ETF sponsors to consider different strategies to potentially gain assets and market share.

Jockeying For Market Share: A New No. 2?

On April 7, 2021, Amundi announced plans to buy Lyxor, a division of Societe Generale, potentially creating a strong No. 2 ETF player in Europe. If the deal is approved and completed, this new entity would have a 14% share of the European ETF market, making it larger than DWS (10% share) and creating even further distance between the combined company and UBS (6%).

As we have seen in the U.S. ETF market, scale can provide a significant competitive advantage, and this deal could allow the combined entity to merge products and/or more aggressively compete on price.

 

Figure 2: ETF Sponsor Market Share in Europe

ETF_Sponsor_Europe

(For a larger view, click on the image above)

Source: CFRA’s ETF Database as of February 2021

 

Lyxor also provides Pan-European diversification to Amundi. At the end of February 2021, 91% of Amundi’s ETF assets listed in Europe were in France, with the remainder in Germany. In contrast, France represented just 57% of Lyxor assets, with a heftier 24% in Germany and an additional 14% in U.K.-listed funds. The merged entity will have an enhanced footprint in markets where its competitors already have a significant presence.

BlackRock’s European ETF business is primarily focused on the U.K. market (79% of assets), with Germany (10%) and Switzerland (8.3%) representing most of the remainder. Meanwhile, Germany is the largest market for DWS, with 48% of assets, but the United Kingdom (35%) and Italy (15%) add some diversification to its European ETF business.

 

Figure 3: Country Breakdown of Likely Top 4 Firms

figure2_Country_top4_firms

(For a larger view, click on the image above)

Source: CFRA’s ETF Database as of February 2021

 

More Fluid ETF League Table Than US

These changes reflect a European ETF league table that is more fluid and less top heavy than in the U.S. While BlackRock (BLK) is the ETF industry leader in both the U.S. (36% market share) and Europe (42%), the top fivefirms in aggregate are not as dominant in Europe. The next four largest firms after BlackRock have only 31% of the remaining assets, leaving 28% of the ETF market to be fought over by several dozen firms.

This contrasts with the U.S., where Vanguard, State Street, Invesco and Charles Schwab have a 52% combined share, with just 12% of assets held by other providers. While U.S.-headquartered asset managers like Vanguard, State Street and Invesco are among the top 10 ETF providers in Europe, established local players such as Amundi, DWS and Lyxor as well as banks such as BNP Paribas and UBS have strong toeholds.

 

Figure 4: The European ETF Market Is Less Issuer Top Heavy Than the US

ETF_Sponsor_Europe

(For a larger view, click on the image above)

Source: CFRA’s ETF Database as of February 2021

 

More Balanced Asset Mix

The European ETF market is also more diversified by asset class relative to the U.S. At the end of February 2021, 78% of the $5.7 trillion invested in U.S. ETFs were equities, with just 19% and 2.2% in fixed income and commodity-based products, respectively.

In contrast, fixed income and commodities represented 25% and 8.4%, respectively, of the assets in European-listed ETFs, with only 65% in equities. In both markets, currency and other alternative asset classes were approximately 1% of assets.

 

Figure 5: Assets Breakdown of US and European-Listed ETF Markets

figure4_Assets_ETF_markets

(For a larger view, click on the image above)

Source: CFRA’s ETF Database as of February 2021

 

Fragmented Trading Infrastructure

A challenge facing the European ETF industry is its complexity due to multiple listing venues and regulatory jurisdictions. Not surprisingly, the largest economies of U.K. (50%), Germany (20%) and France (12%) account for the highest share of primary listing assets.

However, other venues such as Switzerland and Italy are also important ETF markets, and there is a long tail of up to 30 exchanges where ETFs are listed. There is also a distinction between where funds are domiciled versus where they are listed, with Ireland and Luxembourg continuing to be the primary domiciles of choice.

Currency adds another layer of complexity, with many ETFs being listed in multiple currencies on different venues. According to CFRA’s ETF database, 71% of primary listed ETFs in Europe have either a cross-listing or a share class variant, resulting in a patchwork of product. For example, a British pound based version of the U.S.-listed iShares Core S&P 500 Index ETF (IVV) was the largest European-listed ETF.

These factors make the European ETF industry a complex landscape to navigate for market participants, institutional money managers and retail investors. Greater pan-Europe standardization in trading rules and data reporting will be important for the future growth of ETFs in the region.

 

Figure 6: Share of Primary Listing Assets by Listing Country for European ETFs

figure5_Share_primary_Eu_ETFs

(For a larger view, click on the image above)

Source: CFRA’s ETF Database as of February 2021

 

All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. For more information and disclosures, please refer to CFRA's Legal Notice at https://www.cfraresearch.com/legal/.

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