ETFs have flourished despite the pandemic
State Street: Best ETF Back Office Tech Provider & Best Overall ETF Administrator – ETFs have had a good pandemic, says Ciarán Fitzpatrick, head of ETF servicing for Europe for State Street, which is, as he says, something you can’t say very often.
“2020 started positively with strong flows across European ETFs. Then the global pandemic struck triggering extreme market volatility across the financial markets. The volatility was a huge test for ETFs given ongoing concerns of their performance during market stress, and they passed the test with flying colours, demonstrating outstanding resiliency and continued liquidity,” Fitzpatrick says. “In February and March there were concerns in the market about price dislocation between the ETF price and the underlying asset price, specifically for bonds. However, this dislocation was created by the NAV price becoming stale and the fact that the ETF price was update to date and providing price discovery. The secondary market for ETFs continued to provide liquidity for ETF shares and reduced the need for primary market activity directly with the fund.”
Fitzpatrick comments that product-wise and work-wise ETFs have gone from strength to strength, breaking through the USD1 trillion mark in Europe, which, as he says, allows the next milestone of USD2 trillion to be in sight.
While 2019 offered challenging and volatile markets, the year from December 2019 to December 2020 saw a 26 per cent increase in assets for State Street in Europe, with client asset size increasing from USD620 billion to USD780 billion.
Trends Fitzpatrick notes included the increasing importance of fixed income ETFs over the year as they outperformed equity ETFs in net new inflows for part of the year.
“Albeit equity ETFs outgrew fixed income in the end, but we have seen fixed income ETFs being a mega trend globally. The ETF wrapper is beneficial for fixed income asset class because it takes an opaque off exchange instrument and puts it on exchange,” Fitzpatrick says. “Looking at retirement ages across Europe and the US over the next decade, the number of people in retirement will increase by 30 per cent, which will lead to further adoption of fixed income ETFs
He also notes the extraordinary rise in ESG ETFs. “There is nothing new about ESG, it’s been in the active space for well over a decade but was unattainable or at a high price but ETFs have offered a great platform for ESG, giving the products transparency.”
“The Sustainable Finance Disclosure Regulation (SFDR) will tighten up what people can call ESG,” he says, commenting that it’s not just values but performance that is driving flows into these products, with an outperformance over the broader benchmark. “I don’t see that stopping any time soon,” he says. “Realistically, ETF issuers will have to provide look throughs into underlying companies to explain the ESG reasons for inclusion.”
Winning the Best ETF Back Office Tech Provider award this year has resonated well with his firm. “We have been working with the authorised participants (Aps) to deliver a market standardised machine-readable AP confirmation,” he says. “It’s been a transformation as we have designed a one size fits all machine-readable AP confirmation in a CSV format, delivered via FTP. It’s a global file which can be used in the US and in Europe and the feedback is that it is massively beneficial to them,” Fitzpatrick says. “We have also managed to move back the delivery of those files to six or seven in the morning, from 10 in the morning, so they have all the order economics there when they come into the office.”
Ciarán Fitzpatrick, Managing Director and Head of ETF Servicing Europe
Ciarán Fitzpatrick has been with State Street since 2007 after spending 4 years with Investors Financial Services Corporation. He has over 18 years of experience in the financial services industry and is the Managing Director responsible for the overall ETF product offering for new and existing clients in Europe. His role covers planning the ETF strategy for State Street in Europe to ensure alignment with current and future market enhancements Ciarán works directly with our ETF client base and the industry on product and regulatory change across the ETF landscape. Ciarán is a regular contributor in ETF industry publications Prior to this role, Ciarán serviced equity, derivatives, fixed income multi-currency funds. Ciarán received an Honors Degree in Business and Finance from the Dublin Institute of Technology in Dublin, Ireland.