Wealth Manager - the site for professional investment managers

Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

ETFs in Europe are just getting started

ETFs in Europe are just getting started

Talk of the market reaching ‘peak passive’ is way off the mark, with fixed income exchange-traded funds (ETFs) still very much in their infancy, according to Derek Fulton, CEO of First Trust Global Portfolios.

Such has been the growth of passive investment, the CFA Society of New York even held a dedicated conference on the subject earlier this year, exploring whether the exponential growth of passive investing posed an existential threat to markets.

But for Fulton, here in Europe, the market is still in its infancy, with ETFs only around 5% of the market, compared to 20% in the US.

‘Have we reached peak ETF? No, we’re just getting started in Europe,’ he said.

‘It’s only just got started in fixed income. There is €25 trillion (£22.2 trillion) in bonds in Europe, but less than €200 billion in ETFs. It’s only just begun with that part of the market, and we are also going to see factor-investing coming into fixed income.

‘Compared to equity ETFs, that market is 10 years behind and with the technology and the data we have now, it is much more powerful. There is an opportunity for ETFs to become as big a story in Europe as they are in the US.’

Fulton also sees thematic investing as a key growth area for ETFs. First Trust, which is the sixth largest US ETF provider with around $65.4 billion (£50.9 billion) of assets, has made its name in Europe by launching more esoteric products, rather than just joining the price war in the market covering the major global indices.

The company established its Dublin Oeic in 2013, and this year alone, it has caught the eye with the launch of artificial intelligence (AI) and robotics, and internet and blockchain products.


An industry first
While a number of rivals, both active and passive, have launched AI and robotics products over the past year, the blockchain launch, back in April, was claimed to be an industry first.

Thematic for some is a fad for others, so how does the firm decide on which trends have real legs and disruptive potential?

‘There is always the sense of is this a bit of a flash in the pan? You need to be diligent about the themes you want to explore.

‘We have a very strong view of how the economy is evolving and that’s reflected in our products. We’ve never closed an ETF, and we have 132 in the US,’ Fulton said.

The blockchain ETF, First Trust Indxx Innovative Transaction & Process, is focused on the ‘users and enablers’ of the ledger technology, describing them as the ‘pickaxe for the miners’ back in the days of the gold rush.


Dispelling myths
He is keen to dispel the perception that blockchain and bitcoin are one and the same, highlighting the fact that email was the first killer app of the internet. It was just a tiny fraction of the technology’s scope, just as bitcoin and cryptocurrencies were the first killer blockchain app.

‘We need to explain that crypto is just a use of blockchain, just as email is a use of the internet, and crypto is the first killer app of blockchain, but it’s only a tiny percentage of its potential,’ he said.

‘Blockchain has the potential to complete the next phase of the internet revolution.’

He points to real world examples of blockchain’s increasing take up, pointing to Walmart as an example. The retail giant has been working with IBM to develop ways of better logging its supply chain, and from next September, it will require all of its suppliers of leafy green vegetables to upload their data onto blockchain, so it can be tracked.  

 

 

The First Trust Indxx Innovative Transaction & Process ETF’s top 10 holdings

 

Advanced Micro Devices: 3.4%

SAP: 2.9%

Microsoft: 2.84%

Nordic Semiconductor: 2.81%

Accenture: 2.8%

Texas Instruments: 2.73%

Alibaba: 2.69%

ASUSTeK Computer: 2.67%

NVIDIA Corporation: 2.67%

Intel Corporation: 2.66%

 

Source: First Trust (as of 29 June)

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Tim Steer: fund managers will have to get 'stuck in'

Tim Steer: fund managers will have to get 'stuck in'

The second part of our film with former Artemis and New Star fund manager Tim Steer looks at how his profession has evolved over the past two decades.

2 Comments Play Tim Steer: how to spot a stock disaster coming

Tim Steer: how to spot a stock disaster coming

The former Citywire AAA-rated fund manager has written a book on 22 stock disasters and how forensic examination of annual reports could have spotted them coming.

Play CEO tapes: the gap between best and worst alternatives is stark

CEO tapes: the gap between best and worst alternatives is stark

In the final part of our series we take a look at the rise of illiquid investing and whether it really serves in clients best interests.

Read More
Your Business: Cover Star Club

Profile: why the world of wealth is fracturing

Profile: why the world of wealth is fracturing

The problem with wealth management, according to Robert Paul, London & Capital’s youngest ever partner, is that it is very antiquated.

Wealth Manager on Twitter