Fund Management
WEALTH TALK: Focus On 20 Years Of Europe's ETF Industry
This Wealth Talk interview broaches the 20th anniversary of the European-based ETF market, which has expanded hugely in recent years.
On 11 April 2000, the first two exchange-traded funds based on
the EURO STOXX 50 and the STOXX Europe 50 were listed in Germany
(source: Refinitiv, Lipper Alpha Insight). As a result of the
move, Merrill Lynch International, as it was called at the time,
brought a product to Europe which had been used in the US since
1993. Other listings in Europe followed and the market reached €
€870.0 billion by the end of 2019 (that figure has obviously
declined since due to the pandemic).
ETFs track a variety of equity, bond, infrastructure, real estate
and commodity indices; they also replicate returns from
sub-sectors of various markets, and “smart Beta” ETFs track
specific drivers of return, such as yield and momentum, in a bid
to give users a more “active” form of these entities. ETFs are
sometimes placed in the bracket of “passive” funds although, as
we at WealthBriefing know, investment advisors often
dislike that term. Even a decision to hold a specific ETF
is an active decision. ETFs are increasingly used as building
blocks of a client portfolio because they are relatively cheap
and liquid.
However, that doesn’t mean that the industry is without some
issues: ETFs can diverge from indices; some commentators may
argue that the inflows and outflows around them can actually
distort the very markets they track (although this also opens up
opportunities for fast-moving arbitrageurs).
A 10-year bull market in equities after the 2008-2009 financial
crash was in some ways the perfect moment for low-cost entities,
while rising regulatory burdens and a greater focus on the
fiduciary responsibilities of wealth advisors meant that actively
managed, more expensive funds were less in favour, while ETFs
looked a lot more attractive. Renowned investors such as Warren
Buffett have lauded index funds in contrast to, say, hedge
funds.
Of course, with a more turbulent market and all the trauma caused
by COVID-19 and the associated suppressions of governments,
whether ETFs will have another glorious 10 years in Europe can
only be guessed at. In any event, WealthBriefing editor
Tom Burroughes took time to talk to LGIM’s head of ETFs, Howie
Li, about the market and a number of themes within it.
To get involved in our video series, email tom.burroughes@wealthbriefing.com