Earlier this week, exchange traded fund provider Source announced it had entered the Spanish market with the registration of 59 ETFs with the Spanish government agency, Comisión Nacional del Mercado de Valores, allowing them to be distributed throughout the country.
However, Spain is not traditionally an ETF hub. In fact, it’s unclear how many ETFs are actually registered there as Spanish ETFs are not listed on exchange.
Despite this, Source believe that Spain is one of the next European countries to tap into ETFs. The aim is to widen its distribution of ETFs for European investors, which could potentially increase liquidity and reduce costs for existing investors as the funds grow.
Source could well be onto something. This year they have seen marked success from the aggressive push they have made across Europe with inflows already surpassing €2 billion as of 29 October, according to data from Deutsche Bank.
ETF.com talks to MJ Lytle, chief development officer at Source about why it has entered Spain and the potential benefits.
ETF.com Why Spain?
Lytle: It’s an interesting market from an asset management perspective. Despite the fact it has suffered from the economic downturn, there’s a lot of money there. Some €322 billion is in asset management and this breaks down into €189 billion with asset managers, €95 billion with pension funds and €37 billion with discretionary fund managers.
The mutual fund market in Spain, which includes ETFs, has assets of €80 billion and of this about 15 percent, or €7-12 billion, is thought to be in ETFs.
The Spanish asset management market has recovered rapidly in the last five years. With its economy restructured and its real estate problems fixed, among other things.
It has a couple of big players in the banking sector, where it is very concentrated at the top, with the likes of BBVA and Santander dominating, but the tail is very long.
ETF.com: Why haven’t you put the products on exchange?
Lytle: The 59 ETFs have been registered for distribution, not listed on exchange. This is how Spain works.
In all EU countries UCITS funds can be passported, but there are still some rules that they have to obey. The requirements vary by state and for Belgium, France and Spain we use Allfunds, known as a local representative, to assist in meeting our regulatory obligations.
This is done as a measure to protect the retail population.
ETF.com: How can investors get access to ETFs then?
Lytle: Through the fund platform. The Spanish setup is similar to the UK in as much as it is a fund platform setup. We have 12-15 platforms here, but in Spain AllFunds have 70 percent of the market and then others, like Inversis and Tressis are also present. The ETFs are distributed through the platforms. Normally it is done via a broker, but as mentioned, in Spain - like the UK - it is built around the fund platform model.