Hougan: 5 Euro ETF Market Takeaways

I’ve just concluded a week-long, whirlwind tour of London, where I had the pleasure of sitting down with 25+ different people from more than a dozen different firms to talk about the state of the European ETF industry.

Here are my five biggest takeaways:

Takeaway 1: It’s All About The Swiss Wealth Market

Nearly everyone I spoke with in the ETF industry said that they are finding traction with and dedicating significant resources towards the Swiss private banking market. Last time I was in London, UK IFAs were top of mind, and people still believe that market will develop. But the place everyone is excited about near-term is Switzerland, and to a lesser extent, Italy. That wasn’t the case 12 months ago.

Takeaway 2: Source Is The New Buzz Word

After Switzerland, the next topic on everyone’s mind was Source. The Warburg Pincus-owned ETF issuer, now being run by ex-iShares CEO Lee Kranefuss, is making an aggressive play to vault into the top tier of issuers in Europe.

For those of you who haven’t been to London recently, the firm has rolled out an aggressive advertising campaign on billboards trumpeting Source ETFs to the world. Their goal is to have people connect the word “ETF” with the name “Source,” and for their firm to become a go-to—ummm—source for people looking for ETF exposures.

I think everyone in the ETF industry appreciates the advertising campaign. It’s very public, and it’s putting the word “ETFs” in front of millions of people in London. But the firm has had good inflows recently and there was a palpable fear that an aggressive Source could steal significant market share.

It should be fun to watch!

Takeaway 3: People Are Waiting On HSBC

HSBC is a relatively small player in the European ETF market, but the consensus in the industry is that it has all the preconditions for huge success. With a sterling brand and the potential for massive in-house distribution, the feeling is that HSBC could become a major player if it could sort things out and invest heavily in the business. The ETF team at HSBC has always struck me as a smart group, so it seems like just a matter of time.

Takeaway 4: Passives Are Surging In The UK

There was a bit of moaning from people about the relatively slow rate of adoption of ETFs among UK IFAs, but with an interesting twist: Everyone agreed that the overall use of passive solutions was surging, it’s just that most of the money is going into index trackers (including Legal & General, which came up in nearly every conversation I had. Advisers may be waiting on ETFs, but they’re not waiting on index investing.

Takeaway 5: The Need For Education Is Massive

I asked most of the people I met what it would take to break the UK IFA market. They mentioned two things:

1. Fixing the plumbing on UK platforms
2. Education

Despite significant efforts, both by the industry and by firms like ETF.com, overall recognition and basic understanding of ETFs in the IFA market remains limited. We’re addressing the problem with our ETF Certification Program and webinar series, which offers a free, 10-part introduction to ETFs, and different ETF providers each have their own approach as well. There’s optimism that, as more and more education takes place, momentum in the market will increase.

Dynamism Is Growing

I love London; it’s my favourite city in the world. The mix of old and new and the stew of people from all over the world is thrilling.

Compared with my last trip almost a year ago, the ETF industry felt a lot more positive and a lot more dynamic. People are chomping at the bit to both grow market share and grow the market overall, and multiple firms seem to be stepping up their game.

Most consultants predict that the European ETF market will grow faster in the next few years (on a percentage basis) than the U.S., and I left London thinking that might be true. The industry feels like it’s just at the brink of a major breakthrough, and you have new life in firms like Source and others that are pushing things along.

For anyone I didn’t get to meet this time who has an exciting story to tell, whether you are a discretionary fund manager, an ETF provider, a trading firm or an investor, don’t hesitate to reach out to me directly.

Matt Hougan is the CEO of ETF.com. He can be reached at [email protected].