New business inflows nearly doubled for Europe’s exchange-traded funds (ETFs) in 2017 in the run-up to the introduction of Mifid II.
Net inflows into Europe-listed ETFs reached a record $108 bn last year, up from $55.7 bn in 2016, according to London-based consultancy ETFGI.
Mifid II, which came into force on January 3, requires detailed reporting of ETF trades across Europe, which means – for the first time – pre and post-trade disclosures of the details of orders conducted on trading venues across Europe will be published. Until now, around 70 percent of ETF trades in Europe have gone unreported because they occurred in private bilateral over-the-counter transactions.
Leading ETF providers including BlackRock and Vanguard hope the new transparency requirements will set the European industry on a faster growth path akin to that of the US, where ETF use is more widespread.
Institutional investors account for about 90 percent of ETF holdings in Europe, in contrast to the US where retail investors hold half of the total assets invested in ETFs, according to ETFGI.
A study published in October by EU financial regulator the European Securities and Markets Authority (Esma) notes that fees for active equity funds in Europe average 2.45 percent – around four times that of the average for passive equity funds. Esma is planning to further analyze fees charged by brokers and platforms that add to the final bill for end-investors as more information becomes available.
Mifid II also imposes tighter restrictions on lavish commissions that asset managers in Europe were permitted to pay fund distributors in return for selling their products. ETFs do not pay such commissions to distributors, so they are expected to benefit from the new restrictions. This will further highlight the wide differences in costs charged by ETF providers and traditional active fund managers.
