Lyxor optimistic about further ETF growth

Lyxor optimistic about further ETF growth

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Lyxor’s ETF business had a record year in 2015, with net new assets of €8.9bn ($9.9bn), confirming the firm’s position as the third-largest ETF provider in Europe with a market share of 10.7%. While the ETF market has experienced constant growth since 2008, growth briefly slowed in 2013 and new entrants have led to stagnation in the market share of the industry’s largest providers.

Lyxor have managed to expand its European operations this year, despite competition from below, and this can largely be attributed to two factors. Firstly, according to Arnaud Llinas, head of ETFs and indexing at Lyxor, the firm has undertaken “massive investment” since he joined in 2012. “We have grown the team by 40% in terms of sales coverage, marketing coverage and portfolio management capability,” he says, which has provided a springboard to accessing new clients and expanding market coverage.

Secondly, while competition for Lyxor’s traditionally strong markets – France, Spain and Italy – has been fierce, “the countries where we have been able to grow have been locations where we have been historically less strong,” according to Llinas. “Places such as the UK, where we are an ETF challenger. Scandinavia, where we have opened a new Swedish office. Germany, the largest European ETF market, as well as Poland and Switzerland.” Having offices on the ground in these new markets has been vital to the firm’s growth, lending local credibility to the firm’s operations.

Nevertheless, going forward as an ETF and index provider Lyxor must stay mobile and adaptable to compete. The firm has a historical leadership in indexation, with the largest Eurostoxx 50 ETF in the world, as well as the largest Ibex, MIB and CAC 40 ETFs. Last year, with investor appetite for European equities high, the firm profited from the growth in interest in its associated ETFs. However, “2016 is a completely different story because European equities are not in favour anymore,” according to Llinas. “We have seen outflows across the entire industry on European equities. Year-to-date the European ETF industry has only gathered €11bn ($12.2bn). A lot of asset managers in other areas would love to see those figures, but it’s clearly below the trend of last few years.”

In order to continue their growth, ETF providers must offer increased granularity to consumers looking for factor-based investments. In this vein, Lyxor this year completed both their fixed income ETF and smart beta ranges, “which are the two hot areas of the ETF industry at the moment,” according to Llinas. Lyxor’s switchover from synthetic to physical replication for developed market exposures has also continued, with synthetic replication reserved for complex markets where they can improve efficiency. The move is intended to simplify things for the investor, according to Llinas: “We aim to take the best from both worlds, and use each method where it works best for investors.”

In the struggle between active and passive managers, Llinas believes the initiative to be firmly with the passive industry. “This industry is profiting from two fundamental shifts,” he says. “One is the difficulty facing active managers in beating their benchmark – some studies being done in Europe show that only 20% manage to do so. In a world where interest rates are decreasing every year, it is becoming increasingly hard to charge the level of fees that an active manager requires.”

“The second is regulation, which is pushing for transparency and the shortening of distribution channels. This, along with the rise of technological solutions such as automated platforms and robo-advice, has pushed our business towards a new type of client in Europe – retail. Retail used to be a small part of the ETF market at around 10%, but thanks to the emergence of automated investment platforms and regulatory pressure, this may rise to 20% or 25%, or potentially even converging with what we’ve seen in the US where retail is 50% of the US market.” 

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