ETFs have a much longer history in the US than in Europe. While they account for only about 6% of total assets in the latter, across the Atlantic this is 35%. Consequently, the type of growth expected in both continents is also very different. While asset managers based in Europe expect most growth to come from traditional index-trackers, and to a lesser degree from smart beta products, US-based managers focus almost entirely on enhanced ETFs.
More than half of them see a significant growth opportunity in smart beta, compared to only a third of European asset managers. But the most striking Atlantic divided can be perceived when it comes to a relatively new kid on the block, which has gained very little traction in Europe yet: active ETFs.
While ‘active ETF’ may sound paradoxical, it basically is a tracker of an active fund which could be particularly attractive to retail investors and fund platforms, as it significantly lowers their costs. The asset class is still small, accounting for only some 0.1% of total assets even in the US, and is dominated by Pimco. But most US-based asset managers expect that to change quickly. More than two thirds of them see significant growth opportunities for active ETFs, while in Europe very few seem to care.
Pioneering in Europe
“A significant number of fund sponsors [PwC-jargon for asset managers] are already waiting in the wings to launch actively managed ETFs [in the US],” PwC writes in its report. Source, an ETF-provider based in London, is a pioneer in Europe in the field of active ETFs. It offers a range of active ETFs of Pimco funds, and two of funds of Ashmore, the emerging markets boutique.
According to Nicholas Basson, marketing director at Source, active ETFs are not only attractive because of their low price, which is often on par with the institutional share class. “They also offer more flexibility and transparency, which can make them an appealing alternative for institutional investors as well.”
But this live disclosure requirement has its flip side as well, as many asset managers prefer not to disclose their live trades. Indeed, many European asset managers told PwC they still see “many structural barriers that need to be dismantled before active ETFs contribute meaningfully to [asset] growth.”
“The US market has embraced ETFs a bit earlier than we did in Europe,” says Basson. So maybe it’s just a question of time, as regulators become comfortable with them, and active ETFs will take off in Europe too…