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Competition is Hotting Up on the ETP Market

ETF TIMES: Providers in Europe are competing intensely to capture a greater share of incremental exchange-traded fund flows

Lee Davidson 1 February, 2013 | 4:43PM

iShares Acquires Credit Suisse, ETP Industry Consolidation Accelerates

Earlier this month, Blackrock reportedly agreed to a deal to purchase Credit Suisse’s exchange-traded product (ETP) business. At this time, no official numbers have been released, but the deal is expected to be finalised in June. Many analysts and industry experts see the move by iShares (BlackRock’s ETP business) as a pre-emptive attempt to solidify its position in the European ETP market as competition amongst providers escalates.

In recent months, other European ETP providers, notably db X-trackers and Lyxor, have announced that they intend to compete in the physical replication space posing a direct challenge to iShares. Moreover, rival ETP providers in the US have begun to venture overseas. In January, Vanguard—the US asset manager known for providing exceedingly low-cost vanilla ETP products—launched its second batch of ETPs in Europe. The firm launches three products in Switzerland to complement their line-up of five products on the London Stock Exchange.

With its acquisition of Credit Suisse’s ETP business, iShares has bolstered its European ETP overall market share to 43% while cementing its supremacy in the physical replication segment of the market. Among physically replicated funds, the acquisition of Credit Suisse should give iShares roughly 65% market share overall and over 80% market share in the equity and fixed income categories.

Given this positioning, iShares has stated that it should reap much of the benefit of ETP asset growth in the next three years. According to Joe Linhares, head of iShares EMEA, iShares expects ETP assets in European-domiciled funds to double in the next three years to over £440 billion. As more and more European investors become cognisant of the benefits of ETPs, the argument goes, they will begin to transfer money out of OEICs/Unit Trusts and into ETP assets in a similar pattern to that observed in recent years in the more developed US ETP market.

After a Sluggish 2012, ETP Launches are Back

In 2012, new ETP launches were down significantly from the levels seen in 2009-2011. Consistent with a consolidating industry, it comes as no surprise that ETP closures in Europe during 2012 were also up. In fact, ETP closures in 2012 were more than double their historic average. At the start of 2013, however, ETP providers have been particularly active again at listing and launching new products across a spectrum of exchanges.

By our tally, there was a combination of 121 new launches and cross-listings in January compared to just 194 new launches during the entirety of 2012, and only eight new launches or cross-listings in December 2012. UBS accounted for more than half of this burst of activity by listing 61 products on the Borsa Italiana and three more on the Deutsche Borse.  Meanwhile, SPDR celebrated the 20th anniversary of its monolithic fund SPDR S&P 500 (SPY) by listing a total of 11 funds, 10 of which were on the SIX Swiss Exchange. ETF Securities also entered the foray by listing 28 exchange-traded commodities on the SIX Swiss Exchange and one more on the Borsa Italiana for good measure. The dramatic ramp-up in new launches and cross-listings reinforce the thesis that ETP providers in Europe are competing intensely to capture a greater share of incremental ETP fund flows. 

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Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
SPDR S&P 500266.61 USD-0.85
About Author Lee Davidson

Lee Davidson  is an ETF analyst with Morningstar Europe.