Europe Overtakes U.S. In ETF Arms Race

by on August 18, 2009

Despite the fact that ETFs made their debut in Europe nearly seven years after their U.S. launch, the number of exchange-traded products across the pond now exceeds the number of U.S.-listed products, according to a recent report from Barclays Global Investors.

EU FlagAt the end of July, there were 743 ETFs available in Europe, along with 148 ETCs, compared to 706 ETFs and 137 ETCs in the U.S. But the number of funds don’t tell the whole story. According to BGI, U.S. ETF assets still dwarf European ETF assets by more than 3-to-1. ETF assets under management in the U.S. were $582.4 billion, compared to $182.5 billion in Europe.

Moreover, since there are multiple prominent stock exchanges in Europe, the number of ETFs may be a bit misleading. Many funds may trade on multiple exchanges, bumping up the number of funds without impacting the scope of the investable universe covered by ETFs.

The European ETF markets have seen impressive growth in the first half of the year, with 101 new product introductions through July and not a single shuttering. The industry has been much more balanced in the U.S., with 50 new fund launches and 48 fund closures.

Although ETFs in the U.S. and Europe may appear to be similar to investors, their differences are more than skin deep. Most U.S. equity ETFs hold the stocks that comprise their underlying indexes, whereas European ETFs follow a swap-backed model, meaning that European ETFs are similar in some respects to exchange-traded notes. While the swap-backed model reduces trading costs and eliminates tracking error, it introduces credit risk to the ETF model.

Disclosure: No positions at time of writing.