EY - ETFs on track for spectacular global growth

ETFs on track for spectacular global growth

Key findings #6-10

  • Share


6. Big incumbents remain dominant, but competitive dynamics are heating up in many markets.

The "Big 3" will continue their dominance [need to define?]. A large majority of respondents expect market share for leading players to remain stable.

Large firms will switch focus to entering new markets and launching new products. Asia Pacific remains the most attractive region, with Latin America also seeing growing interest.

Foreign entrants will not have these markets all to themselves though; in-market entrants should provide serious competition. In Korea and Japan, local providers already occupy dominant market positions.

Predictions of consolidation at the promoter level are declining. Respondents expect sub-scale players to form alliances or simply exit the market.

7. Improving distribution is crucial to the next phase of growth, especially in retail.

More than 90% of respondents believe their distribution models will need to be improved eventually. For now, US issuers and market makers are focusing their efforts on asset managers and private wealth managers.

The retail business presents a more complex challenge. The industry sees retail as a source of long-term growth, but there is increasing recognition that every retail market has unique features.

The role of independent advisors and investment platforms will be crucial to unlocking retail growth.

8. Growing acceptance of regulation is balanced against its increasing complexity.

Europe continues to feel the greatest burden of ETF regulation, but our survey reveals that tensions have eased slightly since last year.

We also detect a growing sense that the closer scrutiny and greater transparency arising from regulation could boost investor confidence in the industry.

However, there is no question that ETFs continue to suffer cross-effects and unintended consequences from regulatory initiatives aimed at other targets.

9. The industry needs to take a proactive approach to managing its growing tax risks.

Even if implemented in a “light” form, the Financial Transaction Tax is expected to increase costs, widen spreads and reduce liquidity across many European markets. In our view, firms should join their voices to demand sensible carve-outs for the ETF industry.

While the FTT grabs the headlines, other tax issues loom. Management of fund-level investment taxes, such as stamp duty and withholding tax, is a growing challenge. Tax reporting is another pressing issue.

10. Better understanding and engagement with service providers would benefit the whole industry.

Service providers are integral to the ETF industry, supplying the infrastructure that promoters and traders need to make good on their promises to investors. Asset servicers are also expected to act as enablers for development of ETF markets.

With this in mind, it is striking that promoters in most markets feel service providers are not doing enough to support innovation in the ETF industry.