The European ETF Domiciles at a Glance

As ETFs are registered for sales in different countries and listed on multiple exchanges and trading venues, they can be considered as true cross-border products. Therefore, it is not surprising that the majority of ETFs traded in Europe are domiciled in the international fund hubs of Ireland and Luxembourg.

Assets Under Management in the European ETF Domiciles

Even as ETFs are true cross-border products, there are some regulatory requirements that force the promoters of ETFs to domicile ETFs in countries other than Ireland and Luxembourg to serve investors. One example of this is precious metals ETFs domiciled in Switzerland. The Swiss regulator allows ETFs to invest in a single precious metal such as gold, silver, or platinum, which is not an eligible investment objective for ETFs under UCITS regulations. Another reason for listings outside the international fund hubs might be tax advantages for investors that use local domiciled products.

As graph 1 depicts, the assets under management are highly concentrated, as the ETFs domiciled in the five-top domiciles account for 99.25% of the overall assets under management in the European ETF industry.

Graph 1: European ETF Domiciles – Market Share (in %) by Assets Under Management (September 30, 2020)

Source: Refinitiv Lipper

In more detail, Ireland (€552.5 bn) is the European ETF domicile with the highest assets under management, followed by Luxembourg (€203.6 bn), Germany (€44.9 bn), Switzerland (€32.0 bn), France (€31.9 bn), Sweden (€4.3 bn), the Netherlands (€1.0 bn), Turkey (€0.5 bn), Finland (€0.4 bn), Spain (€0.2 bn), Norway (€0.1 bn), Greece (€0.01 bn), and Hungary (€0.004 bn).

Spotlight on Ireland and Luxembourg (as of September 30, 2020)

As Ireland (63.41%) and Luxembourg (23.37%) account 86.78% of the overall assets under management in the European ETF industry, it is worthwhile to analyze the structure of product types in these two domiciles. As shown by graph 2, the first difference between Ireland and Luxembourg can be found in the asset types used by the ETFs. There are no money market products domiciled in Ireland, while these products have a market share of 1.02% of the assets in the Grand Duchy.

Graph 2: Market Share (in %) of Assets Under Management by Asset Type (September 30, 2020)

Source: Refinitiv Lipper

A view of the market shares of the different methodologies by assets under management shows a more significant difference between Ireland and Luxembourg. While ETFs using optimized replication to recreate their underlying indices (59.54%) are the majority in Ireland, this replication methodology has the lowest market share in Luxembourg (16.29%). ETFs using full replication hold the majority of assets under management of ETFs domiciled in Luxembourg (43.60%). Meanwhile, the strategy is the second most used replication methodology for ETFs domiciled in Ireland (33.61%). ETFs using synthetic replication, in particular swap-based methodologies, hold 40.12% of the assets under management in Luxembourg, while their market share in Ireland is only 5.05%. In addition to this, 1.80% of the assets under management in Ireland are held by ETFs using “other” replication methodologies.

Graph 3: Market Share (in %) of Replication Methodologies (September 30, 2020)

Source: Refinitiv Lipper

The differences in the replication methodologies between Ireland and Luxembourg are driven by the preferences of investors, as well as regulatory and taxation differences between the two domiciles, as these differences can be used to optimize the returns of the respective ETFs and the earnings of the ETF promoter.