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Hector McNeil, Boost ETP

ETF market consolidation ‘inevitable’

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Hector McNeil (pictured), Co-CEO of BOOST ETP comments on the announcement that BlackRock is buying the Credit Suisse exchange traded funds (ETF) business…

It was inevitable that there would be consolidation in the ETF market, both in terms of the number of providers but also the number of products.  We at Boost have been forecasting for some time, that in particular many banks would exit the ETF market.  This is due to increased regulation, revenue pressure on their ‘silo provider’ model, expected industry consolidation between players and also the banks themselves exiting the ETP issuance space.
 
We believe that today’s announcement from BlackRock and Credit Suisse will be just the start of this consolidation and that we are likely to see a 30% reduction in the numbers of ETF providers in Europe.
 
The largest EU institutional asset manager players such as BlackRock, State Street, ETF Securities etc will subsume the medium sized issuers, taking out competition and also increasing their market share considerably. These large players will continue to dominate the markets both domestically and globally, especially given the price compression we are seeing in the plain vanilla products.
 
For the smaller Independent issuers, the main opportunities will present themselves in specialised, value added areas, where potential assets under management (AUM) will be too low for the largest players to be concerned with.  These opportunities will be in areas such as short and leveraged products, Vix, commodity and other innovative products the banks would usually provide.  What is most important is that these innovative products require specialist education, they must be fully understood by the professional investor prior to them being invested in, this tends to be best provided by a specialist provider.
 
Nik and I set up BOOST to take advantage of the significant changes currently affecting the European ETP market. Investors and regulators are looking for more transparency around practices such as stock lending, collateral management and use of in-house hedging techniques. We expect a similar model to the US market developing where the core products are provided by large asset managers and innovative, specialist products provided by niche providers.

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