European ETF growth levels to be sustained in 2015, says Deutsche AWM….
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Simon Klein, Head of Exchange Traded Product Distribution & Institutional Mandates, EMEA and Asia, at Deutsche Asset & Wealth Management
The European ETF market is expected to expand 15-20% in 2015, according to Simon Klein, Head of Exchange Traded Product Distribution & Institutional Mandates, EMEA and Asia, at Deutsche Asset & Wealth Management (Deutsche AWM), speaking at a press conference in Frankfurt. With €357.3 billion in ETF assets under management, ETFs currently account for some 3.3 per cent of total fund volumes in Europe.
As well as innovation to provide investors with new types of market exposure in ETF format, other anticipated growth drivers in 2015 will be the range of additional services ETF houses can provide clients, and strong price competition , noted Klein.
“Genuine innovation in the ETF industry means providing access to new markets that were not previously open for investment, and facilitating previously unavailable exposures”, said Klein, adding that services are an aspect that can tip the scales for professional investors when they are choosing between providers of identical or similar products. Additional services can include providing model portfolios. On top of portfolio construction, this can also mean the delivery of key data, statistics, and analysis of historical performance. It is also important that an ETF provider supports trading for professional clients so ETF trading costs can be kept as low as possible.
Klein regards ETF cost efficiency as an important factor in last year’s market growth. “In 2014, we were the first ETF provider in Europe to launch a Core-ETFs range. This was an important dynamic in our winning new clients for whom ETFs have now become a first-choice for passive exposure – for example, as a substitute for futures and institutional mandates”, Klein explained.
Additional highlights of the press conference include:
1) The market should see disproportionate growth in demand for bond ETFs
The Passive team at Deutsche AWM expects to see strong growth in bond ETFs in 2015, especially in the high-yield segment, such as short-maturity euro-denominated high-yield corporate bonds. “With prevailing low interest rates, professional investors need investment solutions that deliver an adequate risk/return profile but also good liquidity”, said Klein.
Bond ETF assets under management (AUM) increased by 41% in 2014, while equity ETF AUM went up by 22%. Above-average AUM growth rates are anticipated to continue in the bond segment. Deutsche AWM recorded some €1.5 billion net inflows into its bond ETFs in 2014.
2) ETF investment solutions will be crucial for the private client segment
Klein believes there is a need for more ETF investment solutions for private clients. These include, for example, ETF fund-of-funds or managed accounts – individual accounts that are generally professionally managed by an asset manager according to the client’s specific criteria and preferences. “One factor in ensuring there is a breakthrough with private clients is the total number of ETF-based product solutions. We want to see product providers develop these types of solutions,” Klein explained.
3) ETFs are increasingly used within active management
In his experience, more active asset managers are using ETFs, noted Klein, adding that with equity markets regularly experiencing periods of volatility spikes, ETFs are being more widely used for taking active decisions based on an asset allocation framework.
Meanwhile, the strategic beta product arena is a good example of how rules-based investment styles using ETFs can be a way of achieving outperformance compared to classic market returns. But even with the growth potential of strategic beta, the task of educating investors in this area is still enormous.
4) Deutsche AWM ETFs achieved strong net inflows in 2014
Deutsche AWM achieved €4.2 billion in inflows in 2014 (Source: Deutsche AWM). During November, the most successful month of the year for Deutsche AWM ETFs in terms of inflows, Deutsche AWM garnered some 30 per cent of the European ETF market’s new assets.
“In 2014 our growth strategy had three key elements,” said Klein. “First we converted our most popular and largest ETFs into physical replication. Second, we launched innovative ETFs, such as our physical China A-shares ETF, and the first ETF to provide exposure to the global investment-grade bond market. Third, we won new clients because of our attractively priced Core-ETFs range. The high level of net inflows demonstrates that our growth strategy is the right one.”
Deutsche AWM is now Europe’s second largest provider of physical ETFs, with AUM in direct replication ETFs of €17.7 billion. In total, Deutsche AWM manages ETF assets of €44.88 billion (as at 07.01.2015).