European ETFs through the years – history of exchange traded funds
On April 11, 2000, Deutsche Boerse in Germany listed the first two exchange-traded funds (ETFs) based on the Stoxx Europe 50 and the Euro Stoxx 50. A product that had been available in the US since 1993 was now available in Europe thanks to Merrill Lynch International’s listing. In addition to Germany, Sweden, Switzerland, and the UK also started trading ETFs in the course of 2000. Even while the initial responses to these novel products were favorable, no one had anticipated the future success ETFs would have.
The critical advancements for European ETFs during the past 20 years are outlined in the blog post below. Let’s discover how European ETFs’ value grew with the time.
Regarding trading and listing new products, the first year after the introduction was relatively uneventful. This changed in 2001 when State Street Global Advisors introduced the first sector of exchange-traded funds (ETFs), which allowed European investors to speculate for the first time by overweighting or underweighting particular sectors in their portfolios. Additionally, investors might utilize these products as a stand-in for single equities to implement exposure to a certain sector within their portfolios. Additionally, the first “synthetic” ETF, which used a swap to match the risk/return characteristics of the underlying Euro Stoxx 50 index, was introduced by French ETF promoter Lyxor.
Investors can now purchase particular bond markets with a single investment thanks to Indexchange, a division of BlackRock that launched the first bond ETF in 2003. By examining the assets under management, these products did not live up to the ETF issuer’s expectations. At that time, investors were more interested in stocks as those markets had begun to rise following the bursting of the tech bubble earlier in the decade.
As the number of investors using ETFs in their portfolios expanded, particularly among institutional investors, there was a greater need for access to new markets. As a result, issuers introduced the first emerging markets, equities ETFs, and ETFs that invest in real estate investment trusts (REITS) with a geographic focus during the year.
Lyxor introduced the initial strategy of ETFs in the European market. These products made it possible for investors to use an ETF to carry out a particular investment plan for the first time. The new tactics included covered-call and leveraged long strategies. AXA Investment Managers and BNP Paribas Asset Management also developed the first commodities ETF through their joint venture, EasyETF. While the trend towards smart beta or factor investing ETFs began years later, in roughly 2012, the first ETFs that allowed investors in Europe to capture risk premia from various factors were introduced in 2005 by Lyxor and BlackRock, respectively. These ETFs were the first to implement dividend strategies.
When ZKB introduced the first ETFs on gold, silver, and platinum that were fully backed by particular precious metals in 2006, commodities ETFs began to experience success. In addition to being fully backed, these goods were also exchangeable, allowing investors to request actual delivery of the metal. This year has changed the meaning and the value of ETFs in Europe.
Money markets are now the asset class the ETF market lacks. When DWS introduced an ETF based on the EONIA money market index in 2007, this gap was filled. Following the impending Global Financial Crisis (GFC), these securities were initially popular among European investors. Additionally, so-called short strategies, or ETFs that allow investors to profit from declining equity markets, were added, broadening the spectrum of available strategy ETFs. As the first ETFs using credit spreads and currency pairs as underlying hedges were released, the introduction of new strategies in the bond and alternatives sectors happened. Moreover, Lyxor introduced the first ETF with a multi-factor strategy (RAFI). The German ETF issuer Indexchange, which Hypovereinsbank formerly owned, was purchased by Barclays Global Investors (BGI) this year. Later in the year, the company changed its name to Barclays Global Investors (Deutschland), and the corresponding ETFs were given to the iShares brand. This was the first significant corporate action since that transaction (the ETF brand of BGI).
AUM surpassed the €100 billion level for the first time in April 2008 as a result of ETFs’ rising popularity in Europe. Despite the fact that mixed-asset products were not yet popular in 2008, the world saw DWS introduce the first mixed-assets ETF in the tumultuous GFC market. Since ETFs saw inflows throughout the year while mutual funds saw significant outflows, this demonstrates the growing popularity of ETFs.
DWS introduced the first ETF that invests in hedge funds in 2009. Even though this market is extremely opaque and illiquid, the corresponding ETF displayed the same intraday liquidity as all other ETFs. Regarding this, when investors used this product, they did not have to cope with the problems brought on by the restricted liquidity of a hedge fund. Even though Marshall Wace and UBS both introduced ETFs in 2010 using hedge fund indexes as the underpinning, European investors haven’t shown much interest in these products. Additionally, this year saw the industry’s second significant corporate merger when US asset manager BlackRock acquired BGI, Barclays Bank’s asset management division. This transaction formed the biggest asset manager in the world and included iShares.
Europe introduced the one thousandth ETF to the market on June 1, 2010. Between April 2000 and June 2010, 65 of these 1000 ETFs were shut down. Overall, 436 of the 1000 ETFs are still operational as of the end of December 2021. These ETFs made up €476.5 billion, or 35.8%, of the total AUM of the European ETF market.
ETFs were once again the product type of choice for investors in Europe during the market volatility of the euro crisis in 2011, as they once more displayed inflows while their actively managed peers suffered significant outflows. Regarding this, it appears that European investors favor ETFs over actively managed funds during market turbulence. Following the euro crisis, European ETF issuers began to introduce bond funds, allowing investors to participate in particular bond market segments. The possibility of avoiding or accepting the risk from particular market segments or using these ETFs as substitutes for individual bonds—for instance, by purchasing a basket of bonds with the same or comparable provisions to a single bond—led to rapid growth for bond ETFs as a whole.
By introducing the first ETF that allowed investors to use the S&P 500 VIX Futures index in their portfolios, Lyxor, a French issuer, took the next step to improve the coverage of ETFs that are centered on asset classes and investing themes in 2012. With the introduction of five UCITS ETFs in May 2012, the world leader in index investing, Vanguard, entered the European ETF market. This year has changed the meaning and the value of ETFs in Europe.
The fourth-largest European ETF issuer, Credit Suisse Asset Management, announced in January that it had sold its ETF business to BlackRock, which had included the Swiss ETF platform as a local offering in its iShares product line.
Seven years after opening its first office in Europe, US-based promoter of exchange-traded funds VanEck introduced its first two UCITS-compliant ETFs listed in London.
The total assets under management in the European ETF market surpassed €500 billion in 2016, coming to €514.5 billion at year’s end.
The next significant business event in the European ETF market was the acquisition of Source by its rival, Invesco, in April 2017. At the time, Source was the eighth-largest ETF issuer in Europe, and Invesco was the sixteenth-largest ETF marketer. The ETF white-label platform HANetf was established later in the year by Hector McNeil and Nik Bienkowski. While white-label systems have long existed in the mutual fund industry, HANetf is the first such platform in the ETF industry. This launch demonstrates how the entire ETF ecosystem is developing as the market reaches maturity. When Legal & General Investment Management (LGIM) announced in November that it had purchased the Canvas platform from ETF Securities, the year finished the same way it had begun. The success of the European ETF market sparked a great deal of interest from mutual fund promoters, who saw ETF market entry as a chance to increase their success. Due to their prior involvement in the US ETF market, Fidelity, Franklin Templeton, and JP Morgan Asset Management’s entry into the sector were not unexpected. However, the introduction of active asset managers to the ETF market has the potential to alter the asset management sector as a whole fundamentally.
ETF launch activity has changed from a concentration on plain vanilla indexes to sectors, market segments, or trends, which is not surprising given that all major asset classes and marketplaces were already covered by ETFs. Demand for ESG products and particular market sectors in the bond and equity markets both contributed to this activity’s growth. In order to strengthen its position as one of the top European ETF issuers and to expand its presence in Germany, one of the important markets for ETFs in Europe, Société Générale bought ComStage, the ETF division of German lender Commerzbank, in July 2018. In order to diversify its ETF portfolio for the European and global markets, promoter VanEck further acquired Dutch ETF issuer Think ETF.
The tragic news of Jack Bogle’s passing at the age of 89 was announced to the world’s ETF business on January 16, 2019. Both the “First Index Investment Trust” and Vanguard were launched by Bogle in 1974 and 1976, respectively. The first index mutual fund that the general public could purchase was this one. In contrast to actively managed funds, which have greater expenses while beating the index, Bogle’s plan for this fund was to match the index’s performance over the long term and produce higher returns with lower costs. For the first time ever, the European ETF market had net inflows of more than €100 billion with a total of €106.7 billion. Additionally, by the conclusion of the year, AUM hit a new record high of €870 billion.
The coronavirus put the world on lockdown at the beginning of 2020, which may cause the worst recession since the 1930s. This led to erratic market circumstances. Given this situation, 2020 may mark the beginning of net outflows since the European Union’s adoption of ETFs. Credit Suisse AM launched three UCITS ETFs with Irish domiciles in March 2020, marking its return as an issuer in the European ETF market.
The European ETF market scored a new milestone at the beginning of 2021 when the AUM in ETFs surpassed €1 trillion at the end of January. The European ETF sector took 16 years to amass the initial €500 billion in assets under management, but it took the ETF industry only 5 years to double that amount. These figures show the European ETF market’s dynamic growth pattern. Amundi bought rival Lyxor from SocGen in June 2021. Shortly after Lyxor completed the merger with ComStage, Amundi was promoted to the position of second-largest ETF provider in Europe, pushing Amundi up the league table. The annual inflows into ETFs in Europe (€161 billion) surpassed the €150 billion thresholds for the first time in history at the end of 2021, marking another significant milestone for the European ETF market.