The European Exchange Traded Product (ETP) industry took a big leap forward in 2014, having gathered USD61.8 billion of net new assets (NNA) in 2014 and shattering the record for NNA over a full year.
“The European ETP market seems destined to break USD500 billion of assets in 2015,” says Ted Hood, CEO at Source, “as investors continue to be attracted to the transparency, relatively low costs and breadth of investment opportunities. Smart beta ETFs are taking off and we also believe it will be the year that actively managed ETFs become more prominent, with several very large managers rumoured to be looking into using the ETF space. Smart beta and actively managed ETF assets could treble in size this year.”
Source has been the pioneer in actively managed ETFs in Europe and continues to be a dominant player in smart beta products. Of the 13 ETFs that Source launched in 2014, eight were either actively managed or smart beta. New funds gathered approximately USD1 billion during the year with outstanding performance from the Source Goldman Sachs Equity Factor Index World UCITS ETF and the PIMCO Covered Bond SourceUCITS ETF. Both funds were ‘firsts’ in Europe and illustrate the appetite investors have for more creative, thoughtful and targeted exposure.
Michael John Lytle, Chief Development Officer, also sees changing trends in the fixed income space. “Globally, almost a third of inflows went into fixed income funds in 2014, and the percentage was even higher in Europe,” he says. “Many pension funds and other large groups of institutional investors are looking to reduce the costs of their portfolios, especially regarding underlying fund management fees. ETFs provide clear opportunities to do this. We believe investors should also consider their allocation within asset classes. For instance, in fixed income, we believe high yield and emerging market debt offer compelling yield enhancements over Gilts and high grade credit. Smart beta and actively managed fixed income ETFs provide such exposure at typically lower cost than mutual funds.”
