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Vanguard expands European ETF business
22 May 2013
The ETF provider has launched a new range of ETFs in Europe in the hopes of matching its US success
Vanguard has raised competition in the European exchange traded fund (ETF) market by launching a new set of Irish-domiciled ETFs.
The four new ETFs are physically-backed and will complement the five that Vanguard launched in the region last year. They will give investors exposure to what it calls “key” developed equity markets.
The new ETFs include the Vanguard FTSE Developed Europe Ucits ETF, Vanguard FTSE Developed Asia Pacific ex Japan Ucits ETF, Vanguard FTSE Japan Ucits ETF, and the Vanguard FTSE All-World High Dividend Yield Ucits ETF. They started trading on the London Stock Exchange on Wednesday May 22.
Vanguard and its competitior State Street have both had a lot of success in the US ETF market and hope to bring this to the European market. Vanguard’s ETFs are best-known for being low-cost and for having long returned 100% of securities lending revenue to its funds. In Europe, it hopes to replicate the success of its “low-cost, straightforward approach”.
More than a third of European investors said they aim to increase their exposure to ETFs this year, according to a survey by FinEx Capital Management.
When asked if Vanguard would want to make acquisitions to increase its standing in the European ETF marketplace, ETF product specialist Tim Huver pointed out that Vanguard has grown organically, not through acquisitions.
BlackRock’s iShares business has taken up colossal share of the European market and recently bought Credit Suisse’s ETF arm. Historical synthetic providers such as Lyxor and db-x-tracker have suffered outflows in recent years as synthetic ETFs have become less popular.
A recent Deutsche Bank report shows that physical ETFs have grown AuM at twice the rate of synthetic ETFs sinces 2011.
In response to the new trend, both Lxyor and db-x-trackers are extending their physical ETF reach. Lyxor now has eight physical ETFs and is soon due to launch its first physical ETF on the London Stock Exchange.
Vanguard’s European ETFs do not engage in securities lending, and the same goes for the four new funds. However, Huver said Vanguard would not rule out lending securities in these funds in the future. He pointed out that the firm has always waited until its ETFs have been active for a while before deciding to involve them in securities lending.
The new ETFs will track FTSE indices. Last year Vanguard hit the headlines when it decided to switch some of its ETFs from MSCI to FTSE.
Vanguard has met some criticism for switching from one index provider to another, with fund analysts suggesting it could disrupt investors and their portfolios. Huver pointed out that the asset manager uses multiple index providers and added: “We have seen a convergence of index providers in the past few years.”
Huver said the firm aims to launch more European ETF this year, both equities and fixed income.