Analysts Expect A European ETP Bonanza

The future of exchange traded products (ETP) in Europe is set to double after a ‘wild ride’, says one shares expert.

Mark Wiedman, the global head of iShares, which is part of asset management firm BlackRock’s ETP platform, says the sector will grow to more than £580 billion by the end of 2017.

Growth will be fuelled as new countries and sectors begin taking up an interest in ETPs, which are securities which track an index or commodity and are traded on stock exchanges much like shares.

ETPs can be cheaper to trade than many bonds and much of the new interest is being led by countries taking up fee-based models for financial advice and products – similar to the retail distribution review (RDR) in the UK.

Mr Wiedman: “In Europe it’s been a wild ride so far with assets held in ETPs hitting a new high of £250 billion at the start of the year.”

Growing demand

He is now predicting that the value of ETPs will double in Europe in the next five years.

Investment in ETPs is also picking up speed around the world with assets growing from £450 billion to £1.3 trillion in 2013.

Now, the firm is predicting growth will be driven by a number of factors.

Among them is a change in distribution dynamics which will help speed-up the uptake by retail investors.

Like the UK, the financial services industries of the Netherlands and Switzerland have also seen tighter rules introduced while in Germany and Italy there is a growing demand from investors for the products.

Those who provide ETPs are also developing wraps for their products to make them more appealing to investors and institutional investors are adding them to portfolios.

Room for growth

Another reason is the poor performance of fixed income products recently which help to make ETPs more attractive and there is increasing interest in fixed-income ETPs.

Mr Wiedman said: “There is still a lot of growth compared with other vehicles such as mutual funds, securities and derivatives. It’s an exciting time.”

He highlighted also that the growth in European ETPs will move the vehicles from the sidelines and into mainstream investment assets as structural limitations are improved.

To put the ETP market into perspective, the amount currently invested in Europe stands at less than 1% of investable assets which gives it huge room for growth.

Tighter regulations in the US have led to a loss of investor appetite for such vehicles with a lot of investment into the European sector coming from Asian investors because ETPs can be traded easily in their time zones.

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