Abrdn has become the latest manager to enter the increasingly crowded European exchange traded fund market.
The launch of its first European ETF comes a day after the Edinburgh-based group said 2022 was “one of the toughest investing years in living memory”, with outflows tripling to £10.3bn, even stripping out a large planned redemption by Lloyds Banking Group, and adjusted operating profit falling 18.6 per cent to £263mn.
Abrdn will attempt to turn the tide by building out a European ETF business, a format that is enjoying solid growth across the continent.
The first seed of this drive is the Global Real Estate Active Thematics (Great) ETF (R8TD), which will invest in a portfolio of listed real estate securities, such as equities and Reits. It will have a total expense ratio of 40 basis points.
Others are due to follow, although a planned metaverse ETF, for which Abrdn has also secured regulatory approval, is seemingly now unlikely to see the light of day.
“This is definitely not a one-off. It will be one of a number [of ETFs] that we will bring to market,” said Neil Slater, global head of real assets at Abrdn.
“We are in an asset management space that is evolving and where ETFs are a very good tool to have in the box, and it is likely that Abrdn will offer a lot more. There is a pipeline of things where we have the skillsets.”
Abrdn follows in the footsteps of Franklin Templeton, Axa Investment Managers and Fineco Asset Management, which have all recently entered the European ETF market. Others are poised to follow suit.
The shift comes as investors pumped a net €72.3bn into European-listed ETFs last year, even while withdrawing €206bn from long-term European-domiciled mutual funds, according to figures from Morningstar Direct.
Outside Europe, Abrdn’s ETF operations, though small, were a bright spot in what was a dismal year for the group in 2022. The division generated net inflows of $629mn as assets rose 8.4 per cent to $7.1bn, according to Morningstar data.
The existing ETF operation largely consists of a handful of precious metal and broad commodity ETFs in the US, purchased from ETF Securities in 2018, augmented by one actively managed “sustainable” equity ETF launched in Australia in October.
Abrdn’s European push will also be based on actively managed ETFs, a concept that is gaining significant traction in the US, where around a third of net flows have gone to active, rather than passive, ETFs so far this year.
“[The Great ETF] is underpinned by our global house view. We run global Reits mandates,” Slater said.
Referring to the market chaos of March-April 2020 when trading in a number of open-ended real estate funds, including some run by Abrdn, was temporarily frozen, trapping investors’ money, Slater said the ETF “doesn’t gate, it doesn’t suspend.
“It’s an illiquid asset class. I don’t think the industry has done itself many favours in terms of being able to offer liquid exposure to this asset class.”
Kenneth Lamont, senior fund analyst for passive strategies at Morningstar, said Abrdn had been rumoured to be entering the European ETF space for many years and active ETFs “may represent the last roll of the dice” for it to do so.
“I think it’s fair to say they have been missing this boat for a long time. The European ETF market is extremely crowded and is dominated by some of the largest asset managers in the world. Any untrammelled virgin soil has long since been exploited and any profit margins driven down,” Lamont said.
Michael O’Riordan, founding partner of ETF consultancy Blackwater Search and Advisory, did not believe Abrdn had left it too late to make a mark in the ETF sector.
“There is room [for them],” he said. “I don’t buy the argument that this is a congested space and there is no room for more players. If you look at the mutual fund space, it’s fine to have thousands of managers, so why should there only be 30-40 ETF players?”
O’Riordan believed actively managed ETFs were poised for growth in Europe, mirroring to some degree the scenario in the more developed US market, even though European active ETFs held just €26bn at the end of 2002, according to Morningstar, versus the €7.9tn of active European mutual funds.
“This is where the next evolution of ETFs is. It’s in the active space,” he added. “What has happened in the US is going to happen [in Europe].”
Despite its reputation as a global investment hub, the UK has thus far punched well below its historic weight in the ETF market.
Barclays had a golden opportunity to be a dominant player when its Global Investors arm developed a family of World Equity Benchmark Series (WEBS) ETFs in conjunction with Morgan Stanley in 1996.
BGI acquired the business outright in 2000 and rebranded it as iShares, only to sell it in 2009 to BlackRock. It is now the largest ETF manager in the world, with $3tn of assets.
Currently the largest UK-based ETF manager is HSBC, but with ETF assets of $18.6bn at the end of 2022 it was just the 31st largest in the world, according to Morningstar data.
Legal & General is 38th, with $12.3bn of assets, and Abrdn, with its overseas ETF assets, is currently third in the UK pecking order and 51st globally.
Lamont said US managers had dominated due to ETFs taking off in North America first, allowing them to build experience and scale.
“Active ETFs maybe the only lifeline left for those British asset managers whose lunch is being currently eaten by the rising ETF market, but is it all too little to late for Abrbn?” he asked.