ETF Giants Turn From U.S. Fee Wars To Europe's Cash Trove

Hammered by fee wars at home, fund managers including BlackRock Inc., Invesco Ltd. and Eaton Vance Corp. are bringing the battleground to Europe.

The firms are seeking to gain in a region that’s flush with $2.5 trillion in pension savings and poised for a surge in exchange-traded fund issuance. Managers on the continent are also struggling to adapt to revised MiFID regulations and dealing with the uncertainty of the U.K.’s exit from the European Union.

The European ETF market may grow to $1.1 trillion by 2020 from $725 billion now as indexing gains traction, according to Bloomberg Intelligence. That’s presenting U.S. firms with an opportunity to disrupt domestic managers who generally charge higher fees than in the U.S.

“It’s literally quite shocking,” Invesco Chief Executive Officer Marty Flanagan said of the ETF industry in Europe. “It’s probably seven years behind” the U.S., he said.

Invesco, the Atlanta-based fund firm with about $810 billion in assets under management, agreed to purchase European ETF provider Source in April. That deal brought in $18 billion in managed assets at a 30 to 31 basis point fee margin, according to Bloomberg Intelligence analyst Eric Balchunas.

In June, BlackRock purchased a stake in European robo-adviser Scalable Capital, as the firm seeks to provide Europeans with a variety of investment choices whether through digital advice or low-cost products that help consumers invest over the long term.

Big Savers

“The key issue for Europe is over 72 percent of all savings is in cash,” BlackRock CEO Laurence D. Fink said on a July 17 earnings conference call. “Most savers are only in cash and bank deposits.”

Some firms have also pursued deals to expand in Europe such as Janus Capital Group Inc., which merged earlier this year with London-based Henderson Group Plc.

“The U.S. market is characterized by a large uptake in passive which has put pressures on fees," Christopher Traulsen, global manager of research for Morningstar Europe, said in a telephone interview. “We are starting to see that happen in Europe but it depends on the distribution model and the market. Passive is still very small compared to the U.S.”