Photographer: Scott Eells/Bloomberg

Get Ready, Europe: BlackRock Sees Trillions Headed for Your ETFs

  • Stephen Cohen, head of ETFs for EMEA, says MiFID is catalyst
  • Market could double to $2 trillion, Bloomberg research shows

There’s a whole lot of money destined for European exchange-traded funds, according to BlackRock Inc., the world’s largest asset manager.

Assets in ETFs that trade in Europe will jump once a regulation known as MiFID II -- the revised Markets in Financial Instruments Directive -- takes effect next year, BlackRock’s Stephen Cohen said during an interview on Bloomberg Television. Cohen, who leads the firm’s ETF business in Europe, the Middle East and Africa, echoed Bloomberg Intelligence research showing that assets in the funds could more than double to $2 trillion over the next five years.

“It is the kind of growth that we expect,” Cohen said on “Bloomberg Markets: Rules and Returns.” “There are broader shifts going on but MiFID II and the regulation is one of the catalysts that should accelerate it over coming years.”

Regulation, a perennial bugbear for bankers, has proven a huge boon for ETFs since the financial crisis. The increased focus on transparency and cost has played to their strengths. ETFs disclose their holdings every day and often charge a fraction of the fee demanded by mutual funds. That’s helped them raise more than $3 trillion in the U.S. But growth in Europe has lagged.

MiFID II is set to change all that, challenging pay-to-play advisory models that have put ETFs at a disadvantage and bringing greater visibility to trading.

Delayed Impact

The impact, however, won’t be immediate, Cohen cautioned. While traders will likely benefit from greater transparency around exchange transactions in 2018, the new rules on distribution will take longer to have an effect.

“The business models take time to change,” he said. But as that happens “we’ll then start to really see the acceleration in ETF adoption. So I think over the next two to three years, you’ll really start to see that catalyst kicking in.”

More issuers are setting up in the region in anticipation of the new rules, with Invesco Ltd. recently buying a European issuer and JPMorgan Chase & Co. listing its first ETFs in London. BlackRock is philosophical about the prospect of more competition in an industry it dominates, according to Cohen.

“Anybody who is looking at the ETF market can play a positive role in driving greater adoption,” he said. “It doesn’t concern us.”

— With assistance by Toni Parsons

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