In it for the long haul
13 June 2017
ETFs are playing an increasing part of the European equities revenue mix as investors embrace the asset class. Simon Colvin of IHS Markit reports
Image: Shutterstock
European exchange-traded funds (ETFs) have grown from strength to strength this year as the advance of passive investing saw investors park more than $48 billion of funds into the 3,000-plus Europe-listed ETFs tracked by the Markit ETP analytics database. This strong haul, combined with some capital appreciation, has seen the assets managed by these ETFs increase by a massive 30 percent year-to-date to $686 billion as of latest count.
There appears to be little that can stop the relentless pace of asset gathering as $10 billion of new assets have poured into these funds over the last few months, which puts the industry well on track to beat the 2015 inflow record.
The relentless investor appetite for ETFs is starting to make waves in securities lending as investors are parking an increasing portion of their newly acquired assets in lending programmes as the value of all Europe-listed ETFs in lending programmes recently crossed the $40 billion mark for the first time ever.
Unlike the rest of the securities lending industry, which has suffered from chronic oversupply over the past few years, this new inventory has found plenty of willing borrowers as the average balance across the asset class increased 18 percent in the first five months of 2017 compared to the same figure a year ago.
Lenders have also been able to achieve a slightly better rate for their ETF loans over the last five months as the weighted average fee for all European ETF loans in the year to 5 June has reached 192 basis points, a slight improvement on the 185 basis points achieved over the same period in 2016.
Both of these forces have ensured that beneficial owners have been able to generate 24 percent of additional revenue from lending out European ETFs so far this year, compared to the same period in 2016. This number can arguably improve as the increasing fees commanded by ETFs indicate that demand for the asset class is outstripping supply, so the industry would be well advised to seek out additional inventory to meet investor demand.
Plugging the revenue hole
This surge in ETF revenues is a relative bright spot for the industry as securities lending revenues generated from lending out conventional equities is down by more than 23 percent so far this year. While the total additional revenue generated, $5 million, is small fry relative to the $288 million revenue gap seen in conventional equities, there is no denying the fact that ETFs are playing an increasing part in the European securities lending market.
In fact, the diverging revenue trends means that ETFs were responsible for 3 percent of total European equities revenue so far this year. This is a 50 percent increase from the contribution derived at the same point last year when ETF lending brought in 1.9 percent of the European equities revenue haul. ETF contributions will no doubt continue to increase as ETFs play a greater role in both long-term investing and shorter term trading.
There appears to be little that can stop the relentless pace of asset gathering as $10 billion of new assets have poured into these funds over the last few months, which puts the industry well on track to beat the 2015 inflow record.
The relentless investor appetite for ETFs is starting to make waves in securities lending as investors are parking an increasing portion of their newly acquired assets in lending programmes as the value of all Europe-listed ETFs in lending programmes recently crossed the $40 billion mark for the first time ever.
Unlike the rest of the securities lending industry, which has suffered from chronic oversupply over the past few years, this new inventory has found plenty of willing borrowers as the average balance across the asset class increased 18 percent in the first five months of 2017 compared to the same figure a year ago.
Lenders have also been able to achieve a slightly better rate for their ETF loans over the last five months as the weighted average fee for all European ETF loans in the year to 5 June has reached 192 basis points, a slight improvement on the 185 basis points achieved over the same period in 2016.
Both of these forces have ensured that beneficial owners have been able to generate 24 percent of additional revenue from lending out European ETFs so far this year, compared to the same period in 2016. This number can arguably improve as the increasing fees commanded by ETFs indicate that demand for the asset class is outstripping supply, so the industry would be well advised to seek out additional inventory to meet investor demand.
Plugging the revenue hole
This surge in ETF revenues is a relative bright spot for the industry as securities lending revenues generated from lending out conventional equities is down by more than 23 percent so far this year. While the total additional revenue generated, $5 million, is small fry relative to the $288 million revenue gap seen in conventional equities, there is no denying the fact that ETFs are playing an increasing part in the European securities lending market.
In fact, the diverging revenue trends means that ETFs were responsible for 3 percent of total European equities revenue so far this year. This is a 50 percent increase from the contribution derived at the same point last year when ETF lending brought in 1.9 percent of the European equities revenue haul. ETF contributions will no doubt continue to increase as ETFs play a greater role in both long-term investing and shorter term trading.
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