How ETF Issuers Are Expanding Outside the US

Sometimes, one country just isn’t enough.

Issuers big and small are tapping into a rapidly growing international market, which climbed to $20 trillion last year. Janus Henderson revealed plans earlier this month to expand its ETF business beyond the US, while the boutique firm Fundstrat is planning to bring its popular “Granny Shots” fund to Europe. Products from across the pond grew faster than American ones for the first time last year. “When you get a successful product in the US, people start knocking on the door in Sweden or Mexico or wherever,” said Hector McNeil, cofounder of London-based white labeler HANetf.

Do U-C-IT Now?

Companies looking to sell to investors all over the world can use both ’40-Act products that meet US requirements and offerings regulated by the Undertakings for Collective Investment in Transferable Securities, or UCITS, McNeil added. The latter set of products adheres to a stricter set of European Union rules and can be registered and sold in EU countries. “If you’ve got a really good idea, you want to say, ‘OK, we want to get this product out in UCITS form for the rest of the world,’” McNeil said. “Everyone’s getting very excited because of that retail rise.”

Part of the hype comes from the ongoing shift away from mutual funds toward ETFs. There are more than 4,500 UCITS mutual fund issuers, according to McNeil, but only a few hundred UCITS ETF providers. “Even if 10% of those enter the ETF market, that means we’re going to quadruple the size of the marketplace,” he said. There’s also the tax benefits. “If you’re running equity portfolios, and you’ve got a large proportion of US equities, which usually have a global basket … you’re paying away an extra 15 basis points for being in a mutual fund versus an ETF,” McNeil said.

Some of the largest such products currently on the market include:

• The iShares Core S&P 500 UCITS ETF, which has $146 billion in assets and is up 8.9% year to date.
• The Vanguard S&P 500 UCITS ETF, which manages $81 billion and is up 8.6%.
• The Invesco S&P 500 UCITS ETF, which has $55 billion and is up 8.5%.

Open Door Policy: Still, the primary reason businesses want to expand is to tap into an entirely new market, McNeil said, particularly when you can offer the same strategy in a slightly different wrapper. “It basically just means that you’re cutting and pasting a lot.”