Analysis of the European ETF industry reveals that 241 funds may be on a so-called “Death List”, according to Detlef Glow, Lipper’s head of EMEA research.
Lipper has identified 241 European ETFs that are under possible threat of closure based on an assessment of commercial viability.
Out of the 1,711 ETFs registered for sale in Europe, 241 funds, approximately 14%, may under review by ETF issuers for reasons to do with profitability and commercial viability.
However, the criteria for admission to the “death list” are fairly low: ETFs must be older than 3 years and have less than €100m in assets. For an industry still in its early stages, this entry criteria is perhaps unduly harsh.
Moreover, many ETF issuers look at costs on an aggregate basis across the whole of their platform, meaning smaller funds are given time to develop and mature.
For investors wishing to assess the commercial viability of an ETF, analysis should consider a number of factors, including both the ETF and the ETF issuer’s assets under management, the trading volume, the bid-ask spread, the financial strength of the issuer, time since launch, as well as the ETF’s competition (i.e. funds tracking the same or comparable benchmark).
That said, the report does reveal the highly concentrated nature of the European ETF industry, with just 46 ETFs accounting for nearly 49% of industry assets.
In terms of European ETF flows, the report shows that, compared with weak growth of 3.75% in 2011, the ETF industry saw solid growth in Q1 2012, with assets under management rising by 8.71% to €250.81bn (Q1 2012). In Q1 2012 equity ETFs saw inflows of over €3bn in new assets under management, followed by €1.5bn into fixed income funds and €770m into commodity-related funds. Money market ETFs experienced outflows of over €990m.
Some 310 ETFs were launched in 2011. In Q1 2012, 62 ETFs were launched – half in the equity space. 19 bond funds were launched in the first quarter, but these have gathered 63% of assets among new ETFs.
ETFs launched in Q1 2012 saw inflows of €490m in new assets under management. Bond funds were the leading group with inflows of €311m, followed by equity funds with inflows of €102m and €49m in “other” funds. Commodity funds enjoyed inflows of €21m, while money market ETFs experienced inflows of €5.63m.
The most active provider for ETF launches in Q1 2012 was Lyxor, with db x-trackers and UBS following.
Commenting on the report, Glow said: “Despite the number of sub-scale funds, with new ETF launches continuing there is currently no foreseeable trend towards consolidation in the ETF industry.”