European mutual fund managers unconcerned by growth of ETFs

London, April 22nd 2021. ETFs in Europe have enjoyed record flows and the industry continues to grow, yet mutual fund managers do not perceive the ETF vehicle as a threat to their own business. This may surprise some readers at a high level, but there are a number of underlining reasons pinning that belief.

In a recent survey conducted by Blackwater Search & Advisory with over 100 mutual fund asset managers without an ETF offering, we found that eight out of 10 European mutual fund managers are unconcerned by the current growth of ETFs and do not even see a current business case for offering them.

However, half of the fund managers surveyed are unsure whether this trend will remain the same true going.

In fact, according to this survey, explains Michael O’Riordan, founder of Blackwater Search & Advisory, a consulting and recruitment firm specialised in helping clients build ETF and Digital Assets platform, “more than half of European mutual fund managers surveyed think that their competitors will launch an ETF offering at some stage, despite hurdles such as daily disclosure requirements, too much competition and cost”.

“When one looks at the success of ETFs, the temptation is to get distracted by their prosperity in the US and simply assume that Europe will follow in the same direction – that it’s just a matter of time, but not necessarily”, adds Michael O’Riordan.

Europe vs. US

There are a number of tailwinds that the US market benefits from which simply do not exist in Europe, namely that ETFs are a more tax efficient vehicle in the US versus mutual funds or that the Retrocession Fee model does not exist in the US, thereby significantly levelling the playing field between ETFs and mutual funds.

According to the survey conducted by Blackwater Search & Advisory, nearly four out of 10 surveyed believe that the Retrocession Fee model adopted across most of Europe is the predominant reason for holding back the growth of ETFs in the old continent.

In spite of the efforts made at educating the market on ETFs, close to 60% of mutual fund managers still feel their firm lacks enough knowledge about the vehicles.

There are key differences providing some insight into why European asset managers have a very different opinion of ETFs compare to their American counterparts. For instance, there are a lot more self-directed investors in the US, making ETFs a perfect vehicle for investors.

Another fact is that non transparent ETFs are now allowed in the US, making it easier for mutual fund managers to offer their flagship products via an ETF without having to worry about front running risks.