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Observing the monthly flows into the European ETF industry, one might get the impression that the majority of the money is flowing to a limited number of ETF promoters and on the next level only to a limited number of ETFs. As a result, only a limited number of ETFs should show significant growth in assets under management. If this thesis were true, the market share of the ETFs with high assets under management would increase more and more over time, up to a point where these ETFs would dominate the entire European ETF industry. On the other hand, the European ETF industry is very innovative and widens its product offerings on a permanent basis, enabling existing clients and new investors to participate in new asset classes and rising trends in the markets, which should lead to inflows into these new ETFs and the European ETF industry as a whole.

Graph 1: Number of ETFs with more than €1.0 bn in assets under management (December 31, 2015 – October 31, 2023)

Source: LSEG Lipper

Graph 1 shows the number of ETFs with more than €1.0 billion in assets under management has significantly increased since 2015. This increase can be explained by the rising popularity of ETFs launched during this period. The core asset classes such as equity U.S., equity global, equity Europe, equity emerging markets global, or U.S. government bond have profited the most from this trend (The trend toward bond products is rather new, and it is not surprising that there were only two bond classifications within the 10 largest Lipper Global Classifications at the end of October 2023). This is because these asset classes normally comprise a large share of the portfolios of all kinds of investors. Within these asset classes, funds that already had high assets under management have profited the most since these products have enough capacity for institutional investors and, because of their size, high liquidity with low trading spreads.

But beside these established ETFs, there are also a number of newly launched products that have been able to gather more than €1.0 billion in assets under management. This has driven the overall number of ETFs with more than €1.0 billion in assets under management from 106 (December 31, 2015) up to 311 (October 31, 2023). Compared to the overall number of ETFs registered for sales in Europe the market share of these products grew from 7.14% (31.12.15) to 16.11% at the end of October 2023.

More important in helping measure the concentration within the European ETF industry is a view of the assets under management. Therefore, an analysis of the market share of the ETFs with more than €1.0 billion in assets under management is warranted. As of December 31, 2015, there were 106 funds with more than €1.0 billion in assets under management. These ETFs held a total of €261.0 billion in assets under management. This amount equaled 59.18% of the overall assets in the European ETF industry (€440.9 billion). As the number of ETFs with more than €1.0 billion in assets under management increased from 106 to 311 at the end of October 2023, it is not surprising that the overall assets under management held by these products increased to €1,056.8 billion.

Graph 2: Market share of the overall assets under management (in euros) of ETFs with more than €1.0 billion in assets under management vs. all other ETFs in the European ETF industry

Source: LSEG Lipper

As shown by graph 2, the market share of the ETFs with more than €1.0 billion in assets under management grew from 59.18% at the end of December 2015 to 77.85% at the end of October 2023. These numbers show that the European ETF industry is dominated by a relatively small number of ETFs. Nevertheless, these numbers also show that the European ETF industry is still competitive since the number of ETFs with more than €1.0 billion in assets under management is increasing over time. This means that even newly launched ETFs have the chance to gather a significant number of assets under management. That said, a view of the overall trends around assets under management by Lipper global classifications shows it is more likely to gather significant assets for ETFs with an investment objective that fits into the core segment of the portfolios of the investors.

Such a market concentration can be seen as a threat to overall competition in the industry and should therefore be seen as critical. But since the assets under management, especially in the equity segment, are also dependent on movements in the underlying markets and the general trends played by investors, the assets under management in single ETFs are subject to change. In addition, ETFs are very transparent, and ETF investors seem to be very cautious with regard to the tracking quality of the ETFs they use in their portfolios. This means investors would not accept underperformance of an ETF over a medium time horizon and would switch to a higher-quality product if it were available. This investor behavior keeps the quality high, since the competition and therefore the number of products is, especially in the core asset classes, very high. The same is somewhat true regarding management fees and the TER, as shown by the latest cost reduction for the S&P 500 ETFs by State Street (SPDR). This move showcased that the European ETF industry is aware of the cost sensitivity of European investors.

Last but not least, the increasing number of ETFs in Europe shows that ETF promoters want to keep up the competition and generate new flows into the ETF market by offering new products. Even if the industry is quite concentrated, some of these new products will be able to become “blockbuster” products themselves. Time will tell whether all these new products are really needed and necessary, but for the time being there is quite lively competition between European ETF promoters.

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