European ETF survey 2013
Drivers of growth
The retail ETF market keeps growing, at a time when other investment structures are struggling to retain funds. European ETFs saw net inflows of US$7.0bn during the first half of 2012, a 5.1% annual growth rate.
We agree with survey respondents that this moderate—but not explosive—growth will continue. By our estimate, retail ETFs will grow to represent 25% of all European ETF assets over the next few years.
We see four key drivers of growth:
- Investor education
- Regulatory changes
- Geographic expansion
Survey respondents view investor education—getting investors to make their first ETF trade—as the single most important driver of retail growth. A big promotional push by one or two large providers could unlock stronger demand.
As the market grows, niche promoters with innovative ETFs could also flourish. Promoters that differentiate themselves in a particular corner of the ETF market could earn higher fees (at least initially) and create greater customer loyalty.
Updated regulations should also give retail ETF sales a boost, albeit not overnight. The Retail Distribution Review (RDR) in the UK, and similar changes under Provisie Verbod in the Netherlands, will soon force financial advisers to charge upfront fees rather than relying on commissions, which benefits the ETF model.
For more information about geographic expansion as a driver of growth, see the “Global markets for European providers” section.
What will drive retail growth in the future?