European exchange traded funds surpassed $1tn in assets last year, smashing all records. But for the head of one of Europe’s largest asset managers, ETF growth will accelerate in 2020 and beyond.
Asoka Wöhrmann, the chief executive of DWS, the largest asset manager in Germany, told Financial News that, in 2020, the booming ETF industry will comfortably surpass the record $125bn of new money raised last year.
Wöhrmann, who became chief executive of DWS in October 2018, said asset managers had “underestimated” the growth potential for the sector.
“There will be much faster growth than anyone has expected,” Wöhrmann told Financial News.
“There will be a big surprise in the next two to three years.”
According to Wöhrmann, lower returns across several asset classes, along with investors losing faith in active managers after years of poor performance will encourage an even larger wave of money to flow into ETFs.
He said the lower fees charged by ETFs would encourage investors to reinvest the proceeds of a bumper 2019 in ETFs.
“What people want to do is reinvest with the lowest price tag,” he said.
Data from consultancy ETFGI showed the European ETF industry last year crossed the landmark threshold of $1tn, pulling in a net $125.2bn between January and December. That is more than double the $56.8bn gathered in 2018.
Xtrackers, the ETF business of DWS, pulled in close to $9bn of that figure, making it the fifth best-selling provider for the year.
BlackRock’s iShares division continued to dominate last year, garnering more than half of the new money the European ETF industry gathered. If the trend continues, large ETF providers are expected to get even bigger.
EY, the accounting firm, has revised its expectations for the ETF sector following another record year of inflows.
Kieran Daly, ETF lead for EY in Ireland, said the firm now expects the European ETF industry to reach $2tn in assets by 2023 – a year earlier than it had initially forecast.
“We would expect very strong growth rates in future,” said Daly.
“There’s huge room for growth. We don’t think that ETFs have realised their full potential relative to the overall market.”
The biggest obstacle to continued ETF growth would be a severe market downturn, which would probably dent performance rather than inflows, as investors have piled into the products during previous declines.
Andrew Walsh, head of passive and ETF specialist sales for UK and Ireland at UBS Asset Management – Europe’s fourth-largest ETF provider – is also confident last year’s haul could be beaten.
“Naturally, if markets suffer an unexpected downturn, comfortably exceeding the $125bn of net new inflows seen in 2019 may not [materialise],” said Walsh.
“However, even in difficult market conditions, we would expect overall European ETF flows to match that seen in 2019.”
Walsh said that, as ETFs grow in size and performance, it would become even more difficult for fund selectors and wealth managers to spurn them in favour of active strategies that have failed to live up to expectations.
“Asset managers and wealth managers are increasingly looking to offer lower-cost propositions and, accordingly, fund selectors there will need even higher conviction when choosing an active fund versus cheaper passive alternatives,” said Walsh.
Fannie Wurtz, global head of ETF, indexing and smart beta at Amundi, pointed to the fact that the European ETF industry has doubled in size over the past four years, and has grown faster than the US market during the past three years.
The US ETF market grew 30.4% last year, to $4.4tn, according to ETFGI.
Wurtz said that while the European market has been driven by institutional client demand in the past, more recently, demand for products to meet discretionary portfolio management needs and individual client mandates was becoming more common.
“Despite being recent, we believe this trend has well-established roots and we are convinced it will boost ETF adoption even further in the coming years,” said Wurtz.
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