Mutual funds are going through a seismic shift which will eventually see the ETFs market grow to unprecedented levels in Europe, HANetf’s co-CEO has said.
Speaking a roundtable in London, Hector McNeil, co-founder of the ETF white-labelling specialist, said ETF strategies will become nuanced and specialised as assets are increasingly allocated to them.
'We just feel it’s similar to digital TV versus analogue TV. It takes a long time to get a certain technology on the market but eventually everyone switches.
'Over time everything you see in mutual funds today, you will eventually see in an ETF,' he said at a conference in London.
McNeil launched HANetf last year as Europe’s first independent white label provider of ETFs.
He said fund types could include smart beta-style approaches but were unlikely to spread to other alternatives areas, such as private equity or property.
'They simply don’t have the daily liquidity for that, over time that’s what the story will be,' he said.
'One of the big observations over the last year is that it has been the first time that Europe has grown significantly more than the US in percentage terms and I think that is going to be a real turning point for us.
‘In the early 2000s the whole global AUM of ETFs was about half a trillion and Europe was about €50 billion. iShares and firm’s like Lyxor accounted for around €10-12 billion each.
'We have come a long way since those days, we are at around €800 billion in Europe now and I wouldn’t be surprised if we go through the trillion mark next year.’
McNeil said investors continue to fixate on liquidity but he highlighted the impact MiFID II will have on this and the ETF market.
‘We keep hearing: "Oh MiFID II is going to sort out consolidation". But I think trading volumes are actually irrelevant except on the basis that it is almost like a due diligence tool.
'The difference going forward will be that thematic and smart beta active products will become less traded and the trading bodies will become less relevant for them, it will become more about performance and track record.'
McNeil said the reality of MiFID II is that it will be a bigger driver for ETF providers.
'Essentially, the regulation is going to strangle the ability of brokers and firms to be able to offer products to clients in the same simple fashion they are today.
'Issuers will need to provide more information such as KIIDs and PRIPPS, and all of these things cost money.
'A lot of US firms won’t know these things exist, a lot of brokers had to take a lot of US products off their platforms because they didn’t have the right documentation in place and I think we will see more of that.'
McNeil said, as the US responds to these regulatory demands, large swathes of money could be reallocated. 'I’ve heard estimates that because of this, up to half a trillion in assets could potentially come back into European products that would have normally gone into US ETFs.'