"Germany is a pioneer in ETF savings plans"
So far, ETF savings plans in Europe outside of Germany have not played a significant role. However, according to Blackrock's European head, Stephen Cohen, the volume is expected to increase dramatically in the near future. The current 7.1 million savings plans with various direct banks and brokers in Germany suggest strong growth prospects elsewhere in Europe as well, says the Head of Europe, Middle East, and Africa in an interview with the Börsen-Zeitung. "Germany is the pioneer of ETF savings plans."
By the end of 2028, as projected by the "Extra ETF" portal in a study supported by Blackrock, the volume in Continental Europe is expected to reach 32 million. The growth, according to the forecast, is being driven by Germany, but the model is rapidly expanding across European countries.
With a volume of 1.4 trillion euros in Europe in a total fund market of 18.7 trillion euros, ETFs account for a market share of 7.5%, according to data from the European industry association Efama. For comparison, in the United States, ETFs have a market share of 23.1%. So, there is still a lot of room for growth for exchange-traded funds, says Cohen. Not only private savers but also many institutional investors use these funds as instruments.
ETF landscape evolving continuously
The total volume of ETF savings plans in Europe is predicted to reach 15 billion euros by the end of 2023, making up only a tiny portion of the entire ETF market. However, Blackrock and Extra ETF anticipate a significant increase in this area as well.
Cohen notes that the ETF landscape has been evolving continuously. While equity ETFs were initially the growth drivers, bond ETFs have been added over the years. The segment continues to diversify, offering sector-specific and thematic funds as building blocks. Savings plans are just one of the innovations, but the German market stands out in this regard, according to Cohen. The majority of contracts are still expected to come from Germany in the coming years.
Also interesting for active funds
Savings plans are not only a recipe for success for exchange-traded funds. In Germany, savings banks and credit cooperatives sell many contracts with actively managed funds. The DekaBank, associated with the savings banks, had 7.5 million securities savings plans at mid-year, while Union Investment, a rival, had 6.4 million contracts at the beginning of the year. In both cases, the number of savings plans has grown significantly in recent years.
Private investors do use ETFs as an alternative to actively managed funds, says Cohen. However, there is still ample room in the market for active fund management. "Active strategies have a very healthy future," he states. On would expect a statement like this from Cohen though, as Blackrock, the world's largest asset manager with $9.1 trillion in assets, has grown significantly with ETFs under the iShares brand and other passive strategies but also offers active strategies. German investors have a total of approximately €200 billion in assets.
Regardless of whether the assets are actively or passively managed, the interest rate shift is changing the rules of asset management, according to Cohen. First of all, bond products are becoming attractive again. "Fixed Income is back," he says. Second, investors' yield expectations are shifting. If the interest rate for safe and short-term investments is already around 4% or more, an investment fund must generate a correspondingly higher return.
ELTIF follows ETF
However, digitalization is not only helping ETFs but is also boosting the distribution of alternative asset classes to retail investors, says Cohen. Investors could, for example, have greater access to the segment through the European fund format ELTIF. The line between different asset classes – publicly traded stocks and bonds on the one side and private equity as well as tangible asset investments on the other – is becoming increasingly blurred.
Nevertheless, not every initiative is met with success. Last year, Union Investment initiated the widespread marketing of an ELTIF in cooperation with Blackrock but later abandoned the plan due to a lack of demand in distribution.
Blackrock has ambitious plans for financing an economic and climate transition, known as "Transition Finance" in industry jargon. Blackrock estimates the investment segment within its own group to be over $100 billion and is targeting institutional investors, among others. The fund giant also aims to convince investors as a data provider. Cohen sees it as "one of the biggest investment opportunities in the coming decades." This is already a familiar mantra in the fund industry.