* Niche funds track social, demographic themes
* Retail investor share growing
* Private banks dipping toes into thematic trackers
* Institutional investors wait on sidelines
By Helen Reid
LONDON, April 7 Brisk growth in exchange-traded
funds (ETF) in Europe is spurring providers to seek out a new
generation of retail investors - by tapping into the lifestyles
they espouse with niche products covering everything from
fintech to robotics.
Lured by the success of similar products in the United
States, the world's dominant ETF market, established players as
well as smaller firms are upping their thematic offerings in
Europe too, where equities look to be recovering after years of
BlackRock launched four such funds in September 2016,
tracking stocks exposed to healthcare innovation, a global
ageing population, robotics & automation, and digitisation.
ETFs are products designed to track an index of stocks
without human intervention, which keeps their costs low. Flows
into European ETFs hit record highs in the first quarter.
The most traded ETFs track global equity benchmarks like the
S&P 500 or STOXX 600.
Thematic ETFs track custom-made indexes of stocks linked to
economic and societal trends. While large institutions are
waiting for them to gain scale, the popularity of some is
Flows to robotics funds worldwide have surged to record
highs this year, Bank of America Merrill-Lynch said in a weekly
report on Friday.
"Index providers are launching these products because they
believe the retail market will evolve in Europe," said Andreas
Zingg, head of ETF distribution at asset manager Vanguard.
"You don't have a lot of retail investors that buy ETFs at
the moment, but this is going to change, in our opinion."
Assets under managements at European ETFs sit at about half
a trillion dollars, a record, while the U.S. market is six times
bigger, according to Thomson Reuters data.
Widespread retail investment in equity markets, partly
linked to compulsory corporate retirement plans that are heavily
invested in stocks, has made the U.S. market ripe for niche
Many track social trends and consumption habits, with
providers banking on firing the imagination of armchair
investors via the trends they encounter in their everyday lives.
A Millennials ETF focuses on companies likely to
benefit from the rising spending power and idiosyncratic tastes
of that generation, and investors can even gain exposure to
medical marijuana stocks through an ETF launched this week on
the Toronto exchange.
According to Goldman Sachs, 10 percent of the free float
across U.S. stock markets is held by ETFs. In Europe, it is
about 2.8 percent - leaving plenty of room for growth.
Vanguard's base case sees an expansion of the retail segment
for ETFs from 24 percent in 2016 to 44 percent by 2021. Its
scenario for faster expansion sees retail investors making up 65
percent of the European exchange-traded product market by then.
Another route into millennials' pockets being explored are
investment apps, which are proliferating in Britain as interest
in ETFs grows among younger investors.
"We're engaging with young people who typically are
investing for the first time with us," said Ben Stanway,
co-founder of the Moneybox app.
It launched last August, advertising on London's subway for
investors to put their spare change into one of three ETFs
tracking global equities, property stocks, or cash. The minimum
investment is just one pound.
Over half of its customers are aged 25-35, Stanway says.
'CHICKEN AND EGG'
A robotics and cyber-security tracker by ETF Securities
was the first of its kind in Europe, picking shares
exposed to growth in robotics, from large established companies
such as Switzerland’s ABB to small-cap entrants.
The possibility of mergers and acquisitions was a main
driver in the choice of stocks, said ETF Securities’ fund
manager Howie Li.
"What we have seen in the last 12 to 18 months is investors
breaking down how they construct their portfolios to allow for
this type of investment," he said.
Trailblazers in thematic ETFs include private banks, with
high net worth investors keen to bet on long-term trends,
according to Christopher Mellor, head of sales and strategy at
Source ETF, which launched its Fintech ETF on March 10
, with just over $13 million under management so far.
But to tempt larger institutional investors into
theme-tracking, niche products need to get much bigger.
BlackRock's four trend tracking ETFs have so far collected
$289 million in assets under management – just one thousandth of
the total for iShares, its ETF arm in Europe.
"Yes, there are these really interesting, funky ETFs out
there, but the liquidity is horrible. They are tiny, and there's
so many," said Hani Redha, multi-asset manager at Pinebridge
Investments, adding, however, that he was interested in themes
like robotics, and would consider buying them once they gained
"It's a chicken and egg situation," he said.
(Reporting by Helen Reid, editing by Vikram Subhedar and John