ETFs
ETFs are experiencing a “game changing” moment in France
ETFs seem to be having a moment on the French market. Demand has never been stronger, with growth among retail and professional investors driven by awareness and key regulatory tailwinds.
The number of French individual investors using ETFs increased by a third year-on-year from 166,000 to 216,000, according to the latest dashboard of active retail investors from the Financial Markets Authority (AMF), while a recent report reveals that ETFs are now appearing in half of everything French life insurance contracts.
The French ETF market has reached a series of milestones in 2024, notably the green light from the government for the first listing of active ETFs, but finds itself with a certain amount of catching up linked to an advisory market still structured towards UCITS.
During a recent trip to Paris, ETF Feed spoke to French fund selectors and ETF issuers to explain why ETFs are becoming an integral part of the market.
Play catch up
Despite their momentum, ETFs in France are catching up with more mature markets on the continent, but Adrien Samuel-Lajeunesse, investment funds and ETF specialist at BNP Paribas Wealth Management (BNPP WM), feels that the situation is changing.
“The proportion of ETF users is growing very quickly,” he said. “Some countries like France were late to adopt an advisor-led market, but the use of ETFs is growing steadily.”
In addition to its growing influence on BNPP WM portfolios, Samuel-Lajeunesse believes that the big opportunity for this product lies in French life insurance contracts.
Traditionally, ETFs have struggled to gain adoption in life insurance savings due to distribution issues.
“It would be necessary to create an ETF in a classic fund format, which not all insurers are willing to do due to the minimum size and lack of interest,” he said. “But the proportion of ETFs is increasing and that will be a game changer for the wrapper.
“The day all life insurance is open to ETFs, we will see very significant capital inflows.”
Another sector driving growth is retail. Lorraine Sereyjol-Garros, global head of the ETF and index sales team at BNP Paribas Asset Management (BNPP AM), said there is huge interest from this section of investors in the use of ETFs in their savings plans.
“I suppose that [retail investors] I will go for ETFs because they are cheap and there are many platforms that offer them,” she said.
According to BlackRock, France, Belgium and the Netherlands could have more than a million new ETF investors by the end of 2024.
Interest can also be manifested through the type of products placed on the market. In April, BlackRock spear THE iShares MSCI World Swap PEA UCITS ETF (WPEA) eligible for the Plan d’Epargne en Actions (PEA), a regulated savings plan similar to an ISA in the United Kingdom.
Investors who hold investments in a PEA for more than five years do not pay capital gains tax and earned income is also free.
Cost pressures
Regulatory factors also have an impact. New European value for money rules require fund selectors to pay much more attention to the cost of their offering.
Antoine Ternon, multi-asset portfolio manager at APICIL Asset Management, said low fees are a key reason for the growth of ETFs in his portfolio, alongside diversification and access to thematic offerings. wider.
“We were a little concerned about the value for money rules, but the low tracking error ETFs helped us reduce costs,” he said.
Samuel-Lajeunesse acknowledges that the regulation will likely be a boon for the ETF market in France. “Regulatory pressures focused on cost and efficiency will also clearly favor ETFs,” he said.
Active ETF Milestone
Another area poised for growth is the active ETF space. In February, the French government updated its financial code to allow active ETFs to be listed on Euronext Paris for first time.
Sereyjol-Garros said the listing was an important milestone for active ETFs and a huge bonus for local distributors.
“A lot [local distributers] don’t like to trade on a non-local exchange, either because they can’t or simply because they want to stay in a local business with local clients. This will help us grow our business there,” she said.
She added group packages to launch 10 additional active ETFs by the end of 2024, including active equity strategies.
AXA Investment Managers has been a driving force behind the approval of active ETFs, working closely with the AMF, a French regulator, and the AFG, the French association of asset managers.
Following this approval, AXA IM was among the First of all to list its active ETFs on the stock exchange.
Olivier Paquier, Global Head of ETF Sales, said: “Investors favor local stock exchanges in their investment choices, so it was essential for us to adapt to the needs of our French clients.
“International investors are looking closely at European stock exchanges and appreciate when ETF providers are multi-listed. »
Samuel-Lajeunesse added that BNPP WM had increased its use of active ETFs, noting the increasingly blurred line between passive and active, but that there remained an element of caution for now.
“We are looking at active ETFs, but integrating these types of products requires more work,” he said. “You have to evaluate their structure, the team that manages the portfolio and what the risks of the specific entities are.
“We’ve gone through three different products so far and we’re a little cautious. Assets can help in an area where liquidity is trickier, but we’ve even seen active ETFs on exposures benchmarked to MSCI World do a great job.