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European ETFs on Track to Reach EUR 1 Trillion in Assets Under Management by 2020, Morningstar Finds

Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its 2017 edition of “A Guided Tour of the European ETF Marketplace”, which examines the latest trends for European exchange-traded funds (ETFs). The report finds that, driven by regulatory changes, innovation and increasing preference for low-cost investment solutions, ETF adoption across Europe is set to accelerate and could hit the EUR 1 trillion-mark by 2020.

Authored by Morningstar’s European Passive Funds Research team, led by Hortense Bioy, CFA, Director of Passive Funds Research, the report presents a comprehensive analysis of the ETF marketplace and insights into the issue of ETF selection. Comprehensive profiles for each of Europe’s eight largest ETF providers–Amundi ETF, db X-trackers, iShares, Lyxor, Source, SPDR ETFs, UBS ETFs and Vanguard–are also included.

“The European ETF marketplace has seen tremendous growth in recent years, with expansion in the number of strategies on offer,” Bioy said. “Despite talk of consolidation, the number of providers and products is still rising. Strategic or ‘smart’ beta, environmental, social and governance (ESG) and thematic exposures are areas of focus for new product development, and as the product menu further broadens, so does complexity. This calls for renewed education efforts for professional and retail investors.”

Bioy added, “Morningstar has long been a proponent of low-cost funds of all stripes--including index mutual funds and ETFs--as one of the most effective tools to drive success for investors. We welcome the growth of passive investing and will continue to expand our research efforts in this area to assist investors in their fund selection process.”

Additional highlights of the research report include:

  • Assets under management (AUM) in European-domiciled ETFs have doubled over the past five years to approximately EUR 550 billion at the end of December 2016 and are now at par with the longer-established market for traditional index funds.
  • European retail investors have yet to fully embrace ETFs, but distribution channels are slowly opening. Incoming regulation like MiFID II should help. In the meantime, the growing popularity of robo-advisors has advanced the case for the use of ETFs by cost-wary retail investors.
  • The European ETF market remains top heavy, with the three largest providers controlling about two thirds of total assets and BlackRock retaining its position as the dominant player with its iShares range.
  • The market share of fixed-income ETFs has increased in each of the past five years and now stands at over 24%, up from 16% in 2011. ETFs are proving a handy tool to gain exposure to fixed income in an environment where the traditional channels to access the asset class have been severely constrained by post-crisis bank regulation.
  • The shift from synthetic to physical replication continues, with assets in physically replicated exchange-traded products now representing 77% of the market, up from 66% three years ago.
  • Providers have launched increasingly complex products, such as strategic or ‘smart’ beta ETFs, with AUM in strategic-beta ETFs quadrupling in four years, landing at EUR 43 billion as at the end of 2016.
  • The European ETF market has become a sweet spot for active fund managers looking to diversify their offerings, with strategic-beta offerings the favoured avenue.

In November 2016, Morningstar began to apply the forward-looking Morningstar Analyst Rating™ to ETFs globally, allowing investors to more easily compare investments across fund types. Morningstar currently rates 111 ETFs domiciled in Europe. For the full list, please refer to Appendix II of the report.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than USD 200 billion in assets under advisement and management as of 31 December 2016. The company has operations in 27 countries.