European ETF Universe Expands

Technological ETFs have caught investors' imaginations, says Morningstar passive analyst Kenneth Lamont

Kenneth Lamont 16 May, 2019 | 1:55PM
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Kenneth Lamont: As the space for mainstream exposures becomes increasingly crowded, ETF providers have shifted their product development efforts towards areas in which they can differentiate themselves and/or maintain margins.

Strategic Beta has been one of the key ETF product development battle grounds of recent years. Most new launches now focus on multifactor equity strategies which can be churned in many different combinations of factors and geographies. These are marketed as a way of improving the risk and return profile of a broad market-cap index by diversifying across factors, each of which can suffer long periods of underperformance.

Spurred by the success of two robotics and automation ETFs, there has also been a renewed interest in thematic ETFs. These funds attempt to profit from long-term macro or structural trends such as demographic shifts, technological advances, and environmental changes. Technological ETFs in particular have caught investors’ imagination, with launches covering artificial intelligence, cloud computing, digital security and e-commerce.

Sustainable investing has grown from its niche to become one of the most fiercely contested areas of product development. In response to growing investor demand, many providers now offer a core set of ESG-focused ETFs, offering varying approaches to ESG integration and hard exclusions. In fact, 2018 was a banner year for ESG ETFs, with assets growing by 50% to EUR 9.95 billion and 36 new products coming to the market, up from 15 in 2017.

For more insight and commentary on the European ETF market, please check out our wide-ranging guided tour of the European ETF marketplace.

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Kenneth Lamont  is a passive funds research analyst for Morningstar Europe.

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