Two-thirds (67 per cent) of institutional and sophisticated investors polled by Invesco PowerShares believe that MiFID II will result in increased use of ETFs by institutional investors in Europe.
Of this, 14 per cent said they expected a significant increase, while just 9 per cent expected there to be a slight decrease. In addition, some 63 per cent of respondents believe the implementation of MIFID II will directly be behind assets held in European ETFs topping USD1 trillion in 2018.
Invesco PowerShares writes that MIFID II, introduced across the European Union in January, is forecast to have a dramatic effect on the ETF industry. “The new rules, designed to improve market transparency and strengthen investor protection, make it possible for the first time to get an accurate assessment of all ETF trades across the continent, including the estimated 70 per cent of ETF trades that previously went unreported publicly because they were ‘over the counter’ (OTC).
“Invesco PowerShares’ daily reported OTC trading volumes have jumped from an average daily range of EUR50 million-EUR100 million for 2017 to EUR150 million-EUR250 million in March this year.
According to the institutional investor research commissioned by Invesco PowerShares, growth in ETFs will be driven primarily by pension funds – viewed by 61 per cent of respondents as the most likely investor type to switch to ETFs in the wake of MiFID II. This was followed by insurance companies (cited by 39 per cent), collective investments such as multi-asset vehicles (39 per cent) and hedge funds (32 per cent).
Low costs/ management fees were the top reason given for the expected increased flows in ETFs post-MiFID II, cited by 72 per cent of respondents. This was followed by liquidity (39 per cent) and efficient sector/ asset allocation (26 per cent).
Jürgen Blumberg, Head of Capital Markets – EMEA, Invesco PowerShares, says: “MiFID II is driving strong growth in ETFs due to the high levels of reporting and market information now required. This has, in turn, eliminated any concerns that institutional investors such as pension funds had over transparency and pricing. For the first time, trade reporting disclosures are being published and we firmly believe that this compelling level of visibility will attract institutional inflows into ETFs.
“In the first months post-MiFID II implementation, Invesco PowerShares itself has seen a significant increase in reported traded from key clients such as asset managers and hedge funds. As the benefits of ETFs become more apparent to such stakeholders across 2018, such as low costs and highly efficient sector exposure, we expect this activity to continue to grow.”