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Investors pile into Vanguard ETF despite launch of cheaper rival

European investors have piled into a Vanguard ETF tracking the S&P 500, despite the launch of a cheaper rival tracking US large-cap companies.

The $23.5bn Vanguard S&P 500 Ucits ETF USD fund landed €600m of new money in April, making it the best-selling fund, both within US equity and across the European-domiciled ETF industry, according to Lipper data.

In contrast, the Lyxor Core Morningstar US (DR) Ucits ETF landed $5m (€4.23m). The fund, launched in March, offered European investors the lowest cost access to the US large cap market.

“This is the US price model that we’re transporting over here to Europe,” Lyxor head of ETF strategy for Northern Europe Adam Laird said at the time of the launch.

Its ongoing charge is four basis points compared to 7 bpts for the Vanguard S&P 500 ETF.

Traction takes time

AJ Bell head of active portfolios Ryan Hughes said Lyxor’s small fund size may prevent larger buyers from using the ETF currently.

“For any new entrant, it will take time to build buyer confidence, and while the price of Lyxor may be lower, investors are likely to take time to ensure that their products have tight tracking errors and are managed robustly before committing to the ETFs. I think they will gain traction but it will take longer than many expect,” Hughes said.

Vanguard’s long-established dominance also works in its favour, he added.

“Just because you are cheap, it doesn’t mean that assets will flow to you quickly.”

Speaking to Expert Investor’s sister publication Portfolio Adviser this week, Laird noted the ETF was close to €50m assets under management compared to €5m at launch.

“New launches take time – fund managers and institutions have on boarding processes which can take a few months to get completed. But we’re well on track here already,” Laird said.

He said the Lyxor team has spent most of its time since launch speaking to investors about the product.

Bonds versus equity

Across the European-domiciled ET universe, bonds trumped equity over April, attracting €1.3bn of inflows, whereas equity lost that amount with net outflows, the Lipper data showed.

In total, European-domiciled ETFs attracted €0.4bn over the month, meaning the Vanguard S&P 500 ETF accounted for 131.5% of inflows for the month.

US equity was the best selling global equity category, attracting €1.5bn. Emerging markets and UK equity were the next best-selling categories, attracting €0.8bn and €0.5bn respectively.

Assets under management in the region’s ETF industry hit €651.9bn.

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