The European ETF industry is set to enjoy robust inflows from both institutional and retail investors in 2019, according to a report from global research and consulting firm Cerulli Associates.
André Schnurrenberger, Managing Director, Europe at Cerulli.
In the latest edition of The Cerulli Edge — European Monthly Product Trends, André Schnurrenberger, Managing Director, Europe at Cerulli, notes that “European ETFs may be about to enter a new phase in their evolution, demonstrating that they can be the vehicle of choice even when investors turn defensive.”
Cerulli research shows that the majority of European ETFs gained net inflows during 2018 – although at a slower rate compared with 2017 – and most held up well during October’s turbulent markets.
Schnurrenberger highlights that a larger number of institutional investors are likely to adopt ETFs as core portfolio holdings during 2019, while the inability of active managers to provide alpha after fees will lead to more diverse uses of ETFs across strategies.
“[Institutional investors] may look at moving some of their satellite elements back into active funds, but they will have to overcome the scepticism resulting from a raft of statistics showing actives repeatedly failing to outperform their benchmarks,” he said.
Cerulli believes that competition amongst ETF providers will continue to intensify, leading to further fee reductions and the emergence of increasingly niche products. Furthermore, the firm predicts that dwindling assets in some funds – certain smart beta products as well as ETFs aimed at specific geographies such as Asia ex-Japan and Eastern Europe – will lead to significant fund closures.
The report also notes that ESG funds, both passive and active, are poised to enjoy bumper inflows in 2019.
“More investors, especially institutions, are showing interest in ESG,” said Schurrenberger. “But ESG means different things to different investors and many are continuing to demand customized versions.”
Schurrenberger believes these institutions may choose to create their own ESG-focused indices and products in a bid to save costs and satisfy their specific demands.