Lyxor launch could spark ETF price war in Europe
Matthieu Mouly, Lyxor
The French asset manager has thrown down the gauntlet to its rivals by launching products as cheap as those available in the US
Much of the talk about the European ETF industry may centre on flashy new smart beta products or the increasing opportunities in fixed income, but the lion’s share of assets have always congregated around the plain vanilla, low cost products tracking the major indices.
These products are dominated by the major players, who are able to keep their prices low enough to attract inflows. But the news that Lyxor has just announced a new range of low-cost ETFs could mean a new price war is about to break out among the big boys.
The Paris-based asset manager has launched four new ETFs tracking equity markets in the US, UK, Japan and globally, which it claims are the cheapest on offer in the market – the lowest price being 4 basis points – and cut the expense ratio of a further 12 of its existing products, including some fixed income funds. Together, these 16 ETFs now make up its Core ETFs range.
“The focus of this range is cost and quality,” says Adam Laird, Lyxor’s head of ETF strategy for Northern Europe. “We have introduced a range of funds with fees as low as you are able to get in the US. We think that in light of the pressure on costs and demand for low fee investments, that this is exactly what there is demand for.”
The European ETF industry attracted $230bn in new assets in 2017, according to ETFGI, with around 50 per cent of that heading into mainstream equity products, claims Mr Laird.
These launches are clearly throwing down the gauntlet to the likes of Vanguard and, in particular, BlackRock’s iShares brand, who first established themselves in the US before taking aim at the European market.
We were the leader until iShares came in 2004. We want to take the lead again at some point
Lyxor is a European provider, and has the interests of European clients in mind, claims Matthieu Mouly, CEO of Lyxor UK, adding that many of the other big providers are US-led, and have to develop different strategies for different markets.
“We were the leader until iShares came in 2004. We want to take the lead again at some point. We are doing it through innovation. We want to be the disruptor of European markets. Europe needs a strong European ETF provider who has the ability to adapt their development to react to the needs of the European investors.”
Choice always welcome
Online wealth manager Nutmeg’s portfolios are entirely constructed from ETFs, and anything which expands its toolkit is a welcome development, says James McManus, investment manager at the firm.
Cost is one thing to take into account when selecting ETFs, he explains, though preferring to use the term “efficiency”.
“Low cost doesn’t matter without quality. We need high quality replication for example. But clearly any basis point we can squeeze out will improve our clients’ returns, especially when you consider compound interest.”
The benchmark is the US market, where core exposures there have been very cheap for some time, says Mr McManus, adding that the new Lyxor range will offer products in a similar price bracket to those on offer across the Atlantic. He adds that Nutmeg follows an open architecture when it comes to indices and providers, and will approach the Lyxor products as it does any other.
ETFs are viewed as low cost commoditised investment option, where price is the main source of competition, says Amin Rajan, CEO of Create-Research. “Lyxor’s move may well spark a price war similar to the one stoked by Vanguard in the US over the past two years. The other ETF players are hardly likely to sit on their hands and do nothing.”
If the cost of these products do fall further, then the main beneficiary will be the end-investor, he adds.
