Exchange-traded funds and products in Europe gathered record net new assets in the first three quarters of this year despite outflows in September.

ETFs and ETPs listed in Europe gathered $47.4bn in net new assets in the first nine months of this year, overtaking the previous record of $28bn in the first three quarters of 2011 according to preliminary data from consultancy ETFGI’s end Q3 2014 Global ETF and ETP industry insights report.

Paul Young, head of capital markets group, SPDR ETFs, Europe, Middle East and Africa at State Street Global Advisors, told Markets Media: “This year was the first in Europe where notional flows were similar to the US. It is hard to predict when Europe will catch up with the US but there is evidence that investors are widening their product choice to include ETFs as well as traditional fund structures.”

Young will take part in a discussion forum on European ETFs at Markets Media’s Global Markets Summit London on October 16.

However last month European ETFs suffered net outflows of $3.1bn. The largest net outflows of $1.9bn were from equities, followed by commodities at $808m and fixed income at $798m.

Young said ETFs are flow products so at times there will be wholesale movements out of specific assets. “It will be interesting to see outflows from ETFs relative to the flows in the entire asset class,” he added.

Deborah Fuhr, managing partner at ETFGI, said in a statement: “Due to the on-going situation in the Ukraine, Scotland’s referendum vote, and the Bank of England Governor’s statement that a rate increase was ‘getting closer’, investors reduced their exposure to Europe.”

Young added investors in Europe still need education about the deeper liquidity available in the ETF market. “They still have an overriding sense that ETFs in Europe are not liquid as equities as on-exchange trading is such a small share of overall volumes,” he said.

Bats Chi-X Europe has estimated that between 70% and 80% of ETFs listed in Europe are traded over-the-counter on a daily basis, and up to half of this volume goes unreported.

In order to improve transparency the stock exchange launched a new trade reporting initiative for ETFs at the beginning of this month.

Market participants can report all their ETF trades to BXTR, the exchange’s trade reporting platform, rather than multiple national exchanges or trade data monitors. The data is then made publicly available through Bats’ market data feeds.

“Bats Chi-X has a strong presence with the majority of ETF liquidity providers so their reporting product should gain some traction,” added Young. “It should be good for providing market intelligence until reporting becomes compulsory in MiFID II.”

Another challenge in Europe is the fragmentation of the market, as ETFs can be listed on a number of national exchanges and settled locally in the national central securities depository of the exchange where the trade is executed.

This month State Street Global Advisors said it would become the first issuer to migrate exchange-traded funds from a domestic structure to an international structure.

SSGA plans to merge thirteen SPDR ETFs to an international ETF structure under Irish Law towards the end of this year. The international structure designed by Euroclear Bank allows the ETFs to be issued and settled for the first time in an international central securities depository which reduces costs and operational risk.

Young said State Street will watch and wait to see how the international ETF structure performs.

“If there is evidence that the international structure makes a difference then other issuers are likely to try the same thing,” he added. “All of our more recent ETF launches have been on the the Irish structure and we will continue to assess the post-trade environment all of our products operate in to optimise the market maker and client experience.”

State Street has launched 58 ETFs in Europe with 40 listed in the last three years. “We have seen a decent uptake of vanilla products but what is very exciting are the flows into more innovative products such as emerging markets and fixed income,” said Young.

BlackRock’s iShares is the largest ETF/ETP provider in Europe with assets of $209.8bn, reflecting a 46% market share, according to ETFGI. Deutsche Bank’s db x/db ETC is second with $54.4bn, followed by Societe Genrale’s Lyxor AM with $47.8bn.

Featured image via Gajus/Dollar Photo Club