March 2021 saw USD1.2 trillion Northern Trust Asset Management launch its ETF arm, FlexShares in Europe, with two climate focused ETFs. Marie Dzanis, head of EMEA for NTAM, explains that she has spent the last 12 years with NTAM (and longer than that in the ETF industry), having arrived in Europe for that launch two years ago.
Dzanis was the fourth employee in the launch of FlexShares in the US, and her longevity in the industry gives her perspective on the firm’s European expansion. “I am responsible for the business in the EMEA region and through assessing the landscape and the clients we serve in Europe, it made good sense that we could have a powerful contribution to the ETF landscape in the European marketplace,” she says.
“We have had long standing good relationships with discerning institutional investors in EMEA and they have an expectation that we will deliver.”
Climate-focused ETFs dominated the first offering in Europe for the firm as Dzanis feels that this is an area that FlexShares does well, with its parent NTAM operating in the ESG space for three decades and enjoying, she says, ‘a lot of branding success delivering ESG solutions’ in the EMEA marketplace.
“We have seen the entire gamut of the green transition,” she says. “We have worked with pensions and other institutions to deliver programmes on innovative ways to bring ESG into portfolios as the majority of businesses expect authenticity in their ESG products.”
Dzanis observes that there is a huge opportunity for growth for ETFs in Europe: “If you have authenticity and longevity, the ETF is a very attractive vehicle. Investors are tuning in- especially, during times of market volatility, as they offer transparency and immediate access to a strategy. At times of market volatility, they come into their own and that transparency enables them to also be a suitable vehicle for price discovery.”
Dzanis notes that the value of price discovery is that it is there in an ETF regardless of whether the market is closed or open.
FlexShares plans to have more products in Europe: “Our success in the US and the market conditions today are why we have chosen to launch in Europe.”
Barriers to entry and to growth of ETFs in Europe such as the fragmented market and the retrocession fee structure remain, despite the recognised growth in ETF assets, currently roughly USD1.5 trillion.
“We have to look at a consolidated tape,” Dzanis says. “It’s a bifurcated market which is a challenge to navigate. The good thing about ETFs is that because they’re an accessible, transparent and efficient vehicle, the pricing generally tends to be significantly lower than something comparable in different vehicle structures.”
Dzanis believes that the benefit of a highly liquid tradeable transparent solution is that it is something that the market demands.
“During a growth period there is a likelihood of the market discovering better access points with products and we have to talk about it and I am encouraged by the ecosystem in the ETF community talking about it. There are lots of growth opportunities and a positive collective mindset for willingness to solve this, so I am encouraged by the dialogues going on.”
Dzanis says that in terms of creating products, FlexShares is index agnostic: “Our products are actively designed but passively managed and designed for real world solutions,” she says.
“How we think about it is if you are a pension fund or a wealth individual or an institution, they likely have four common outcomes: capital appreciation; risk management; liquidity management and generating income. Institutions and intermediaries look for highly tradable and liquid vehicles.”