A Look at Europe's Top 10 ETF Providers

By Paul Amery

In my last column, I focused on some of the major facts and figures concerning the European ETF market, which included a list of the top 10 product providers. In this, my second feature for IndexUniverse.com, I'd like to explore a little further the product range of the top 10.

In aiming to capitalise on the rapid growth of the ETF market, we will see that the major players have adopted some quite different strategies. Equally, the ETFs on offer are quite diverse - some firms have attempted broad market coverage, while others continue to concentrate on specific asset classes or look to newer methods of offering exposure; for example, via second-generation indexes, leveraged or inverse funds. 2007 also saw a big increase in the number of "themed" ETFs.

Three months into 2008, it is becoming clear that the favourable market conditions that had prevailed for most of the previous five years have come to an end. Although the commodity boom has continued, the sell-off in equities and credit has been severe, and the outlook seems to be darkening. This presents an interesting new challenge to the major ETF houses, and causes us to ask: Which are best positioned for an equity bear market?

Let's look through the top 10 European ETF providers. Figures are as at end-2007.*

1. BGI/iShares (BCS)

#ETFs	AUM ($ bln)	Mkt. Share (%)
137	57.65	43.3

As in the U.S., iShares is the behemoth of the ETF market, with a market share of just under half in Europe. 2007 saw a branching out into new product areas, with the firm launching ETFs in five "alternative" asset class areas: global water, global infrastructure, clean energy, timber and forestry, and private equity.

Elsewhere, the firm has added Shariah-compliant funds and, more recently, emerging market bonds and emerging market infrastructure, in what is the largest product range in the European marketplace.

What's missing? iShares is notably absent from the leveraged, inverse and leveraged inverse sectors, and its fixed-income range is perhaps underdeveloped. According to Frank Henze, iShares' head of product development in Europe, the firm is looking at "more shades" of ETF bond market coverage, so watch this space.

2. Lyxor

#ETFs	AUM ($ bln)	Mkt. Share (%)
87	31.48	23.6

Lyxor has been very active in new product launches across a wide range of asset classes over the last year, focussing particularly on country exposure in emerging equity markets (Russia, China, India, Brazil), and on further commodities offerings. Recently, they have made a big commitment to fundamental indexation via the launch of four new ETFs linked to the FTSE RAFI indexes, and have made an interesting bid for hedge fund territory with a quantitatively driven ETF (Lyxor WISE).

Lyxor has a good deal of direct product overlap with iShares in more traditional equity index coverage, with the Lyxor version typically priced a basis point or two cheaper than the iShares offering, in what seems like a fairly comfortable coexistence. With these two firms claiming almost three-quarters of the European ETF market, it is up to new competitors to be innovative when trying to gain market share.

Is Lyxor too equity-dependent? If the recent bear market trend continues, the firm may need to focus on new areas to keep assets up.

3. db xtrackers (DB)

#ETFs	AUM ($ bln)	Mkt. Share (%)
49	10.66	8.0

Deutsche Bank's xtracker range has had a highly successful start since launch in early 2007, with nearly 50 ETFs at year-end, and another 30 since then, while claiming close to a 10% market share from a standing start. According to Manooj Mistry, DB's head of structuring, the company deliberately aimed at broad-brush market coverage on launch, but one smart move has been to expand the range of inverse equity ETFs in time for the 2008 bear trend. Another has been innovation in the credit area (both long and short ETFs linked to the iTraxx indexes). Finally, the EONIA money market fund linked to overnight rates has quickly become the biggest European fixed-income ETF. DB seems well-positioned to increase market share further in 2008.

4. AXA/BNP (BNPQY.PK)

#ETFs	AUM ($ bln)	Mkt. Share (%)
30	6.69	5.0

A few things stand out in EasyETF's product range: the CAC 40 France country fund, a mainstay considering the funds' French sponsors (AXA IM and BNP Paribas);

the range of pan-European equity sector funds, based on the EURO STOXX indexes; the global property market ETFs based upon listed real estate companies in the EPRA indexes. With critical mass in all these areas, the firm has a solid foothold in the European ETF market. Recently, EasyETF has launched credit market funds based on the iTraxx indexes and so far has gained more assets than Deutsche Bank in this area (though it lacks DB's inverse versions).

5. Credit Suisse (CS)

#ETFs	AUM ($ bln)	Mkt. Share (%)
8	4.97	3.7

Almost half the assets run by Credit Suisse's XMTCH subsidiary are invested in the group's first ETF offering, the SMI index fund, which was launched in 2001. Five of the eight XMTCH ETFs are invested in Swiss markets, with the other three offering equity exposure (two on the MSCI EMU Index, one on MSCI emerging markets). While CS is probably unassailable on its home turf, it has little presence outside the Swiss market. Will it reinvigorate plans for Europe-wide ETF coverage?

6. Crédit Agricole

#ETFs	AUM ($ bln)	Mkt. Share (%)
3	3.02	2.3

Crédit Agricole's three ETFs cover the French CAC 40 Index and two Standard & Poor's European equity indexes (SPDR and SPDR 350). With no new product launches for some time, we presume that the bank is happy to rest on its domestic client base.

7. XACT Fonder

#ETFs	AUM ($ bln)	Mkt. Share (%)
9	2.51	1.9

Stockholm-based XACT occupies an interesting niche, complementing ETFs covering the Swedish market and the Nordic region with two funds offering exposure to the FTSE RAFI fundamental indexes (one in Sweden, one in Europe), plus 150% leveraged bull and bear ETFs on the Swedish large-cap index. A relatively small but well-positioned player, they have an intelligently chosen product range - one that is perhaps more diversified than those of some larger players.

8. ETF Securities

#ETFs	AUM ($ bln)	Mkt. Share (%)
55	2.45	1.8

A textbook case of explosive growth - ETF securities have capitalised on the ongoing commodities boom to multiply their assets severalfold in 2007. More recently, they have built out their product range by offering commodity ETFs based on 3-month forward indexes (to help investors manage contango/backwardation risk), and adding leveraged and inverse versions to offer investors scope to play commodity prices both ways. All these moves seem well thought out, and the company has positioned itself as the commodity tracker of choice. Will they branch out into new areas of the market, or stick with what they know best?

(Through the end of Q1, ETF Securities assets had more than doubled to over $5 billion, vaulting it from No. 8 to No. 5 on our list.)

9. State Street Global Advisors (STT)

#ETFs	AUM ($ bln)	Mkt. Share (%)
13	2.35	1.8

With the exception of the Dutch AEX country ETF, all the SSgA streetTRACKS ETFs are cross-European, mostly sector equity funds, where they face stiff competition from the other major players (although SSgA's funds focus on the MSCI indexes, while iShares, Lyxor and DB track the DJ STOXX 600 sectors). Given State Street's No. 2 position in the ETF market worldwide, their European ambitions have seemed modest to date - time for some new offerings?

10. UBS (UBS)

#ETFs	AUM ($ bln)	Mkt. Share (%)
9	2.14	1.7

All nine UBS ETFs have Swiss primary listings and focus on major market equity indexes from the Dow Jones range - plus a FTSE 100 fund. With just over $2 billion in assets, UBS is a relatively small player, and its product range does not stand out. While the funds will presumably retain a captive audience in the Swiss private banking market, some innovation is needed to capture a wider European client base.

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* Source for this and other industry data - Morgan Stanley 2007 Year-End ETF Global Industry Review

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Paul Amery is the European correspondent for IndexUniverse.com. He can be reached at [e-mail].