European ETF survey 2013

Scale and consolidation

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The importance of scale is growing. Higher regulation and registration costs are driving up the expenses of European providers, while price competition is becoming aggressive.

Our survey shows that most promoters are planning to absorb these higher costs internally, reinforcing the importance of economies of scale. (One exception is the emergence of specialists with niche ETFs.)

Meanwhile, margin pressure is squeezing profits and exposing a latent need for consolidation. In June 2012, the US ETF industry managed almost four times the money of its European counterpart, but with fewer ETFs (1,183 compared to 1,334 in Europe) and promoters (34 compared to 39).

“Some smaller firms may not get off the ground. They will struggle to raise assets in the face of competition from large providers.” (from the survey)

So who are the potential buyers? Large European asset managers that have yet to develop an ETF business are likely candidates, either to grab a share of the ETF market or to defend themselves against erosion of their mutual fund assets.

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