How to enter European UCITS ETF market North American roadshow attracts close to 100 asset managers; more than the total number of issuers currently in Europe

  • HANetf LSE VettaFi Tidal JP Morgan Scotiabank and A&L Goodbody conducted the roadshow in New York Boston and Toronto in July.
  • The group spoke to nearly 100 asset managers in the US compared to the 50 ETF issuers on London Stock Exchange showing the excitement around entering the world’s second biggest ETF market.
  • US ETFs have seen significant growth due to preferable tax treatment versus mutual funds but Irish-domiciled ETFs have their own tax advantage compared to European mutual funds which is expected to drive similar growth.
  • HANetf has already brought 10 sister UCITS ETFs mirroring existing US-domiciled ETFs to Europe thanks to its unique white label service that breaks down European barriers to entry for asset managers.
  • White label services provide a time and cost efficient way to enter the European ETF market.

August 2023 London

HANetf Europe’s first and largest independent white-label ETF and ETC platform and leading provider of digital asset ETPs recently conducted a US roadshow speaking to over 100 asset managers &ndashmore than the total number of issuers currently in Europe.

HANetf travelled to New York Boston and Toronto in July conducting panels for US-based asset managers. Europe has a population over twice that of the US but has $1.5 trillion in ETF assets compared to ~$7 trillion suggesting strong room for growth. It is generally accepted that the European ETF market is 3 to 5 years behind the US ETF market. Asset managers therefore want to get ahead of that growth opportunity and are looking at ways to streamline entry.

White label providers in the US have dramatically lowered the barriers to entry and HANetf is doing the same in Europe. The firm has over 20 clients issuing ETFs using HANetf’s platform. As a relative benchmark that would take London Stock Exchange’s number of issuers to over 70 if they all individually listed instead of using HANetf’s services.

HANetf as Europe’s first white-label ETF provider can help US asset managers to enter the European market quickly and efficiently with minimal barriers to entry. Time to market is typically 10 weeks and reduces the costs of entry from millions of USD to thousands.

The high number of asset managers that attended the US roadshow compared with the relatively few ETF issuers on London Stock Exchange demonstrates the appetite for launching European ETFs. But setting up shop in the EU is costly and slow -therefore a white label service makes sense.

Todd Rosenbluth Head of Research at VettaFi commented: “While many ETF trends are global there are significant benefits to learning from local partners to navigate the rapidly evolving European environment. During the roadshow many industry veterans were able to communicate how we can support ETF growth of US managers in a new market.”

So far HANetf has turned roughly 10 US-domiciled funds into UCITS ETFs listed across Europe’s largest exchanges including London Stock Exchange Deutsche Borse and Borsa Italiana. The explosive growth of ETFs in the US is often credited to the preferable tax treatment ETFs receive compared to mutual funds in the US. Less known however is that Irish-domiciled ETFs have a tax advantage when it comes to holding US equities.

Distributions from UCITS ETFs domiciled in Ireland are not subject to any WHT at source. Investors effectively receive the distribution “gross” and there is no need to complete any forms to reclaim taxes. Instead all investors have to do is include the income received as part of any tax return filings in their home jurisdiction.

Rising demand for UCITS ETFs in Europe Latin America and Asia appears to be driving similar demand in the US and Canada thanks in part to their perception of being more tax friendly than US ETFs by investors. Global asset managers increasingly understand that having US 40 Act and Irish UCITS ETFs provides a global distribution footprint.

Canada specifically has a smaller market than the US but it is in many ways more advanced -the first ETF in the world was created in Canada. Active ETFs have been around for a long time in Canada and are seen as the norm. Many Canadian ETF providers have global ambitions and see UCITS as a means of achieving global distribution. HANetf already has two Canadian ETF clients.

In 2017 there were 199 Irish-domiciled ETFs with a cumulative &euro275 billion in AUM&mdash but in June 2023 the total AUM reached &euro1 trillion demonstrating the surge in popularity of these UCITS ETFs in recent years. Irish-domiciled ETFs now account for over 68% of the &euro1.5 trillion European ETF market according to ETFbook.

Hector McNeil Co-CEO and Co-Founder of HANetf comments: “We always say that Europe is at least 3 years behind the US in trends. This is especially true when it comes to ETFs. While Europe lags the US in ETF adoption the continent is set to catch up and the growth trend is almost identical. The strong interest in entering the European market among US & Canadian asset managers shows this. But how will they enter the market? Building a new European ETF business costs millions and takes years. Buying is another option but every costly with inflated valuations. But there are not enough ETF issuers for every US asset manager to buy. Therefore white labelling is likely to be an attractive solution providing quick and easy entry. This can be on a rent or incubate basis.

Many asset managers ask if European ETFs have a tax advantage similar to that US ETFs have over mutual funds. For all its not the same but Irish domiciled ETFs do have a powerful advantage. They are subject to half the withholding tax applied to US equities compared to mutual funds and other ETF domiciles such as Luxembourg. We believe this advantage will be a significant driver to European ETF growth including active ETFs.”

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