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By Deborah Fuhr, managing partner and co-founder of ETFGI.
Many ETF/ETP managers in Europe are adjusting their product offerings hoping to create and develop bestselling ETFs and ETPs. At the end of the first half of 2013, the European ETF/ETP industry had 1,954 ETFs/ETPs, with 6,156 listings, assets of US$357 billion, from 49 providers on 23 exchanges.
The breakeven point for a fund or ETF to cover its cost used by many consultants is US$100 million in assets under management (AUM).
Only a quarter, or 500, ETFs/ETPs in Europe have assets over US$100 million while three quarters or 1,454 ETFs/ETPs have less than US$100 million in AUM.
Nearly two thirds or 1,253 ETFs/ETPs have less than US$50 million in AUM and just over a third (35%) or 678 ETFs/ETPs have less than US$10 million in AUM.
The top 100 or top 5% of the ETFs/ETPs, account for 60% of European ETF/ETP assets. Just 70 of the ETFs/ETPs in listed in the Europe have gathered over US$1 billion.
If ETFs fail to gain a critical level of assets after a number of years the provider is likely to consider adjusting their product set. In the first half of 2013, 51 ETFs/ETPs have closed; 2013 has seen a significantly larger amount of closures than there were at the same point in 2012 when 26 products had delisted/merged, and is on course to break last year’s record number of 88 closures. 2011 had 27 closures in the first half of the year, while in 2010 there was just 1 over the same period.
Providers of ETFs/ETPs are also adjusting where they will list and cross-list their ETFs/ETPs. Many providers are reducing the number of cross-listings to save costs and concentrate on exchange liquidity. In the first half of 2013 there have been 231 delistings in Europe which is higher than the 189 delistings that occurred in all of 2012.
In H1 2013, 75 new products were launched from 14 different providers. At the same point last year there had been 153 new products, with 169 in the first six months of 2011 and 317 over the same period in 2010. New product launches in the first half of the year have been the lowest since H1 2007, when 69 ETFs and ETPs were launched.
The 75 new launches in H1 2013 have gathered US$1.2 billion in assets year to date. There have been 15 new share classes launched in H1 2013 which have raised a further 500 million. Four new ETFs/ETPs have gathered over US$100 million, 2 new products have gathered between US$50 million and US$100 million and 92% or 69 new launches have gathered less than US$50 million year to date.
Forty-four percent of the new product launches in the first half of 2013 were on commodity benchmarks, thirty seven percent were on equity benchmarks followed by twelve percent on fixed income benchmarks.
Sixty percent of the new launches were ETFs as defined in Europe by ESMA. A UCITS ETF is a UCITS with at least one unit or share class of which is traded throughout the day on at least one regulated market or Multilateral Trading Facility, with at least one market maker which takes action to ensure that the stock exchange value of its units or shares does not significantly vary from its net asset value and where applicable its Indicative Net Asset Value.
The term “ETF” does not cover other types of exchange-traded products (ETPs) such as exchange traded notes (ETNs), exchange-traded commodity funds (ETCs), and exchange traded vehicles (ETVs). The distinction between ETFs and other ETPs is important as funds are highly regulated and follow prescriptive guidelines on the types of investments they can make, diversification, and exposure, how fees and costs are shown and the tax and regulatory treatment for investors is often different.
(Source: ETFGI Monthly Insight Report end of First Half 2013)
ETFGI is a wholly independent research and consultancy firm providing services to leading global institutional and professional investors, the global exchange-traded fund and exchange-traded product ecosystem, its regulators and its advisers. www.etfgi.com.