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INVESTMENT FOCUS-Robotics ETF, anyone? Firms float trendy trackers in Europe

Fri 7th April, 2017 2:43pm
* Niche funds track social, demographic themes 
    * Retail investor share growing 
    * Private banks dipping toes into thematic trackers 
    * Institutional investors wait on sidelines 
    By Helen Reid 
    LONDON, April 7 (Reuters) - Brisk growth in exchange-traded 
funds (ETF) in Europe is spurring providers to seek out a new 
generation of retail investors - by tapping into the lifestyles 
they espouse with niche products covering everything from 
fintech to robotics. 
    Lured by the success of similar products in the United 
States, the world's dominant ETF market, established players as 
well as smaller firms are upping their thematic offerings in 
Europe too, where equities look to be recovering after years of 
sluggish growth. 
    BlackRock launched four such funds in September 2016, 
tracking stocks exposed to healthcare innovation, a global 
ageing population, robotics & automation, and digitisation.  
    ETFs are products designed to track an index of stocks 
without human intervention, which keeps their costs low. Flows 
into European ETFs hit record highs in the first quarter.*:nL8N1HF2T6 
    The most traded ETFs track global equity benchmarks like the 
S&P 500  SPY.P  or STOXX 600. 
    Thematic ETFs track custom-made indexes of stocks linked to 
economic and societal trends. While large institutions are 
waiting for them to gain scale, the popularity of some is 
    Flows to robotics funds worldwide have surged to record 
highs this year, Bank of America Merrill-Lynch said in a weekly 
report on Friday. 
    "Index providers are launching these products because they 
believe the retail market will evolve in Europe," said Andreas 
Zingg, head of ETF distribution at asset manager Vanguard. 
    "You don't have a lot of retail investors that buy ETFs at 
the moment, but this is going to change, in our opinion." 
    Assets under managements at European ETFs sit at about half 
a trillion dollars, a record, while the U.S. market is six times 
bigger, according to Thomson Reuters data. 
    Widespread retail investment in equity markets, partly 
linked to compulsory corporate retirement plans that are heavily 
invested in stocks, has made the U.S. market ripe for niche 
    Many track social trends and consumption habits, with 
providers banking on firing the imagination of armchair 
investors via the trends they encounter in their everyday lives. 
    A Millennials ETF  MILN.O  focuses on companies likely to 
benefit from the rising spending power and idiosyncratic tastes 
of that generation, and investors can even gain exposure to 
medical marijuana stocks through an ETF launched this week on 
the Toronto exchange  HMMJ.TO .  
    According to Goldman Sachs, 10 percent of the free float 
across U.S. stock markets is held by ETFs. In Europe, it is 
about 2.8 percent - leaving plenty of room for growth. 
    Vanguard's base case sees an expansion of the retail segment 
for ETFs from 24 percent in 2016 to 44 percent by 2021. Its 
scenario for faster expansion sees retail investors making up 65 
percent of the European exchange-traded product market by then. 
    Another route into millennials' pockets being explored are 
investment apps, which are proliferating in Britain as interest 
in ETFs grows among younger investors. 
    "We're engaging with young people who typically are 
investing for the first time with us," said Ben Stanway, 
co-founder of the Moneybox app.  
    It launched last August, advertising on London's subway for 
investors to put their spare change into one of three ETFs 
tracking global equities, property stocks, or cash. The minimum 
investment is just one pound. 
    Over half of its customers are aged 25-35, Stanway says. 
    A robotics and cyber-security tracker by ETF Securities 
 ROBG.L  was the first of its kind in Europe, picking shares 
exposed to growth in robotics, from large established companies 
such as Switzerland's ABB  ABBN.S  to small-cap entrants. 
    The possibility of mergers and acquisitions was a main 
driver in the choice of stocks, said ETF Securities' fund 
manager Howie Li.  
    "What we have seen in the last 12 to 18 months is investors 
breaking down how they construct their portfolios to allow for 
this type of investment," he said.  
    Trailblazers in thematic ETFs include private banks, with 
high net worth investors keen to bet on long-term trends, 
according to Christopher Mellor, head of sales and strategy at 
Source ETF, which launched its Fintech ETF on March 10 
 SOFTEK.L , with just over $13 million under management so far. 
    But to tempt larger institutional investors into 
theme-tracking, niche products need to get much bigger. 
    BlackRock's four trend tracking ETFs have so far collected 
$289 million in assets under management - just one thousandth of 
the total for iShares, its ETF arm in Europe. 
    "Yes, there are these really interesting, funky ETFs out 
there, but the liquidity is horrible. They are tiny, and there's 
so many," said Hani Redha, multi-asset manager at Pinebridge 
Investments, adding, however, that he was interested in themes 
like robotics, and would consider buying them once they gained 
    "It's a chicken and egg situation," he said.   
 (Reporting by Helen Reid, editing by Vikram Subhedar and John 
 ((; +442075420402; Twitter: @helenmariareid)) 


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