A raft of exchange traded fund white-label providers have entered the European market, hoping to gain traction among active managers.

Private-label provider Axxion and asset management servicing group Waystone have both launched ETF businesses recently, while exchange traded product specialist Leverage Shares and cryptocurrency-focused asset manager Iconic Funds have also entered the white-label space.

Jose Garcia Zarate, Morningstar’s associate director for passive research, says the arrival of more white-label providers is a sign of the growing popularity of the ETF wrapper among investors.

 

ETFs vs Mutual funds

 

“This hasn’t been a good year for the investment fund market overall, but you only have to look at flows to see that ETFs are holding up relatively well,” he says.

ETFs have attracted positive net flows this year, albeit at lower levels than previous years, whereas open-ended funds have attracted net outflows, according to Mr Zarate.

“Inevitably, all sorts of asset managers – small, medium, large – that so far have shied away or ignored the ETF market are taking notice,” he adds.

Paul Heffernan, Waystone ETF chief executive officer, says his firm has seen huge demand from its institutional clients to enter the European ETF market.

“The fund flow numbers have been steadily rising year on year and 2022 has been the first year that ETFs have outstripped mutual fund flows on an absolute basis, which is remarkable given the legacy distribution models across Europe,” he says.

“We are [also] seeing a significant number of active managers getting comfortable with portfolio disclosure rules that are currently in place for ETFs, which is allowing for new product development opportunities in the wrapper.

“We also expect changes to the current active ETF rules, which will increase the product development opportunities and ultimately more choice for investors.”

Benjamin Linn, relationship manager at Axxion, says ETFs have become increasingly important in recent years.

He says: “On the one hand, this allows us to reach broader groups; on the other hand, we enable our fund initiators to benefit from general ETF advantages, such as costs, transparency and liquidity.

“If their strategies can be translated into an index, ETFs offer direct added value.”

The new launches come five years after HanETF founded its white-label ETF business.

 

Market share on white-label firms

 

Michael O’Riordan, founding partner of Blackwater Search and Advisory, believes the new launches are more a case of firms trying to take market share off HanETF, rather than any specific client demand for white-label providers.

“HanETF has been the incumbent in Europe for a long time, so it’s only natural some competition would come along at some stage,” he says.

“Whether they will be successful is anyone’s guess.”

Mr Zarate says white-label ETF companies “come in handy” because entering the ETF market can be highly complex and expensive in operational terms, particularly so for smaller asset managers.

“They provide all the infrastructure to get products out, they deal with the regulatory requirements and can even manage the ETFs on behalf of their clients,” he says.

“These white-label companies can also be used by larger asset managers who may just want to test the ETF waters, before committing internally to setting up all the necessary infrastructure to run an ETF business themselves.”

 

Different type of white-label providers

 

Deborah Fuhr, founder of ETFGI, says: “Some of the smaller ETF issuers have built out infrastructure and now that it’s built, there’s an economy of scale they can work with and offer to others.

“If I’m a small ETF provider and I partner with some larger firms that don’t really know whether they want to get into the market or not, but want to try it, I can allow them to use my infrastructure to quickly come to market.”

Ms Fuhr adds that there are already many white-label ETF companies in the US, which has a much larger ETF market.

But Mr O’Riordan says that although working with white-label providers may sound like a good deal, they are not right for every firm’s needs.

He says: “That’s why I always advise that firms really do their due diligence, get guidance and ensure they know what they are signing up for in advance.

“Not all white-label providers are created equally.”