With over 11 new ETF issuers in Europe this year alone1, there is no shortage of interest for asset managers looking at ETFs as a way to expand their distribution audience and capture the asset growth opportunities via this UCITS structure. Hybrid models, otherwise known as unlisted and listed share classes, have become a popular ETF entry point.
The Deputy Governor of the Central Bank of Ireland (CBI), Derville Rowland, recently outlined a policy change regarding the naming convention for a UCITS which has both listed and unlisted classes2.
Let’s break down these policy changes and what they mean for managers:
- The CBI have indicated that they will converge their approach with other fund jurisdictions regarding the use of the UCITS ETF identifier and in the future, “the UCITS ETF identifier can be included at the level of a sub-fund or a share class.”
The change allows Managers launching an ETF share class in a mutual fund the option to rename the sub-fund to include the UCITS ETF identifier (as previously required) or only include it at share class level. This has the potential to alleviate some concerns managers had when converting their mutual fund into an ETF, if they opted to launch an ETF share class.
- Managers may begin launching ETF share classes within their mutual fund as a first step into the ETF market without barriers to entry.
Given that the ETF market has grown at a CAGR of >17% over the past 10 years3, and the European active market is growing at >22%4 managers are eager to capitalise on this growth opportunity. The hybrid structure gives managers the opportunity to sell their product to investors via the ETF wrapper who they may not be reaching with their mutual fund.
Market entry of launching a share class in an existing structure, can be more straightforward, potentially less costly, and faster than launching a new standalone UCITS ETF. With new strategies being launched to market, investors will have additional investment options to choose from, in turn acting as a tailwind for growth.
ETFs have been evolving as a product set since their introduction almost 35 years ago and this welcomed change by the CBI has the potential to continue their evolution.
1 ETFGI
2 https://www.centralbank.ie/news/article/speech-past-present-and-future-of-exchange-traded-funds-derville-rowland-24-october-2024
3 ETFGI Europe ETFs Industry Insights Report September 2024
4 ETFGI Global Active ETFs Industry Insights Report September 2024
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