Celebrating the many flavours of ETFs

ETFs have had the most extraordinary year in 2020, with assets flowing in across the entire range of products and new launches bringing European investors an even wider range of access to the transparent, liquid, low-cost investments that ETFs represent. 

As State Street’s Ciaran Fitzpatrick said during his interview for this special report, Europe’s ETF assets crossed the USD1 trillion milestone over 2020, and once you have got past that barrier, the next trillion is easy. 

Speaking at the ETF Express virtual awards ceremony, Gina Miller, co-founder of wealth manager SCM Direct, said: “2020/2021 feels like a year in which ETFs are coming of age – some 30 years after their birth – and have survived several testing times.”

Miller, a passionate campaigner for a fairer UK financial services, commented on the democratisation of investment that ETFs offer. “When we started SCM in 2009 we talked about wanting to ‘democratise’ investing – to offer lower ticket investors model portfolios that balance cost, risk and returns whilst offering 100 per cent transparency. ETFs were the catalyst that enabled us to make that shift.”

She pointed out that ETFs allowed the firm to open up investment strategies and asset classes that have historically been accessible only to the largest and most sophisticated of private and institutional investors.

“It is now possible to hold S&P500 for 0.03 per cent (3bps), plus transaction charges,” she said. “Remarkable when you consider that the S&P 500 has outperformed Warren Buffet’s company, Berkshire Hathaway, over 10 years, five years, three years and one year time horizons.

“Using ETFs allows for investors to own the MSCI World index for less than 0.12 per cent plus transactions fees.”

There is one stand out flavour for ETFs over 2020, and that is ESG. It was always a more popular investment filter in Europe than in the US, but 2020 was the year that saw it step up to dominate. 

Looking at Europe alone, Bloomberg Intelligence predicts that ESG may top 10 per cent of Europe’s ETP assets with regulatory backing. According to Bloomberg Intelligence’s European ETP 2021 Outlook, ESG strategies could increase their share of European ETP assets to more than 10 per cent in 2021 from 8 per cent given a strong push by regulators and issuers in the region.

Bloomberg reports that ESG accounted for almost 40 per cent of Europe’s ETP launches in 2020 and about the same share of industry inflows. “A record haul of EUR42 billion in 2020 helped assets in Europe-listed ETPs focused on ESG factors double to EUR84 billion, or about 8 per cent of the industry total. ESG strategies account for about 40 per cent of the year’s ETP flows, Bloomberg says.

Miller referred to ESG ETFs in her keynote speech at the awards, calling for more variety of product offering in this key and popular area. 

“There is limited choice when it comes to ESG fixed income products,” she said. “According to Bloomberg, there are only 17 ESG corporate bond ETFs in sterling available in the UK and only one UK ESG equity ETF priced in sterling.

“We would like to see product innovation across a range of products, including: alternative share classes offering currency hedging; factor tilted ESG strategies, such as a US value ESG ETF, for example, one that uses an index that does not hold all the giant tech stocks.”

This report contains interviews with a number of our winners in this year’s ETF Express European awards, compiled with Bloomberg. Read their stories and celebrate with us the breadth and strength of the European ETF industry. 

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Beverly Chandler
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