Dining at the Top Table

Last Updated: 16 April 2024

Are the ETF issuer rankings becoming like England’s premier football league?

As reported yesterday, the top three issuers, in a ranking of Europe’s exchange-traded fund providers by assets under management, still command over 70% of the region’s funds. Alongside a concentrated US market, it seems the leading US and European ETF issuers straddle their markets as the top English football teams do in their league – year-on-year, while their relative positions change, they never slip from the top spot.

Despite the market share of iShares and Lyxor declining a little across in Europe in 2010, the two firms, along with db x-trackers, attracted nearly two-thirds of the net new assets invested in Europe’s ETFs.  That meant cash inflows of US$13.3bn for iShares, US$6.8bn for Lyxor and US$8bn for db x-trackers. That is from a total new cash flow figure of US$45.7bn.

In the US ETF market, the concentration of assets amongst the industry leaders is even more extreme, with the top three (iShares, State Street, Vanguard) holding 85% of the funds invested.  That leaves a very long tail – 25 firms, according to BlackRock’s research – holding the rest.

The top three firms in the US also monopolised the flow of new money last year, commandeering 75% of it. The top three were Vanguard, US$40.bn; iShares, US$27.5bn; and State Street, US$11.7bn.

Judging by the feature article we published yesterday (‘Do Fund Fees Matter?’), investors appear reluctant to shift assets to newer marketsurprisingly insensitive to newer  entrants offering cut-price tracker funds, primarily on the grounds that the larger existing funds offer cheaper trading.

It is therefore unsurprising that fund closure risk – the likelihood of smaller players quitting the sector – is increasingly on people’s minds, particularly in the US, and our forthcoming Inside ETFs conference in Florida has a session devoted to the subject.

In Europe, a fragmentation of the market and the fact that issuers often operate successfully within one or two national markets may mean this risk is lower but it’s worthwhile remembering that the closure of Spa ETF two years ago landed remaining investors with a hefty bill.

For this reason, fund closure risk is also one of the topics we’ll be addressing at our May conference in Amsterdam.  Places are filling up steadily, so be sure to reserve yours.  Admission is free to ETF investors, while the early bird admission rate to other delegates lasts until the end of this month.

For those ETF providers outside the top three places in the US and Europe, is all hope lost?  Not necessarily.  Several firms have formed highly successful and profitable niches for themselves based on index innovation, expert coverage of particular asset classes or by offering short or leveraged exposure (even if that particular sector of the market is much less prominent than a couple of years ago).

But overall, it feels as though the gold rush days of the exchange-traded fund market are behind us and the industry is settling into a phase of slower growth and consolidation, where it will be increasingly difficult for newer entrants to dislodge the major players through organic growth.

With that in mind, will takeovers and mergers of ETF providers be the next big story?

Author
  • Luke Handt

    Luke Handt is a seasoned cryptocurrency investor and advisor with over 7 years of experience in the blockchain and digital asset space. His passion for crypto began while studying computer science and economics at Stanford University in the early 2010s.

    Since 2016, Luke has been an active cryptocurrency trader, strategically investing in major coins as well as up-and-coming altcoins. He is knowledgeable about advanced crypto trading strategies, market analysis, and the nuances of blockchain protocols.

    In addition to managing his own crypto portfolio, Luke shares his expertise with others as a crypto writer and analyst for leading finance publications. He enjoys educating retail traders about digital assets and is a sought-after voice at fintech conferences worldwide.

    When he's not glued to price charts or researching promising new projects, Luke enjoys surfing, travel, and fine wine. He currently resides in Newport Beach, California where he continues to follow crypto markets closely and connect with other industry leaders.

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