Unseating a Giant
The greatest foe and potentially the greatest barrier facing incumbents and new entrants is BlackRock-iShares. iShares is by far Europe’s largest ETP provider, commanding some 43.3% of total European ETP assets according to an April 24th report from Deutsche Bank. iShares’ closest competitors in terms of market share are Deutsche Bank (14.5% market share), Lyxor (11.5%) and Credit Suisse (4.9%). In January, iShares agreed to a deal to purchase Credit Suisse’s ETF business. If the deal goes through, iShares’ resulting market share would be pushed up to approximately 48%, based on recent figures.
With such a commanding market share, other European ETP providers have become increasingly concerned about iShares’ tightening grip on the local market. Indeed, we have written about this in months past as the Herfindahl-Hirschman Index (a commonly-used measure of industry concentration) has been signaling that the European ETP industry is nearing a high degree of industry concentration, especially if the iShares-Credit Suisse merger were to go through. In April, it seems regulators came to a similar conclusion and have placed a hold on approving the deal until an investigation into the proposed merger has been completed. The Office of Fair Trading in the UK and the Irish Competition Authority are reportedly investigating the deal, a process which may take up to three months to be completed.
As anti-competitive concerns linger, ETP providers are wasting no time, and continue to compete for assets. In April, iShares announced a deal with FundSettle that will bring 50 iShares products to Dutch wealth managers and private banks. As iShares seeks to gain a foothold in the Netherlands and Switzerland with these deals, other ETP providers are just entering the fray.
First Trust, the eleventh-largest US ETP provider, entered the European ETP market for the first time in April, launching three “smart-beta” ETPs on the London Stock Exchange providing exposure to emerging markets, US large cap, and UK equity indices respectively.
Meanwhile, other large ETP providers are trying to innovate to garner assets. State Street Global Advisors created the first ever European ETP to provide exposure to emerging market inflation-linked bonds—the SPDR Barclays Emerging Market Inflation-Linked Bond UCITS ETF. State Street launched this fund on the Deutsche Borse in April and plans to eventually list it on other exchanges across Europe.
