S&P Dow Jones Indices CEO: A Number Of ETF Players Will Not Survive

Matturri predicted there will be continued consolidation within the ETF industry as there are currently too many similar products, while the major providers have already taken market share.

Last year saw a number of acquisitions across the ETF space, with Invesco Powershares snapping up Source and Guggenheim Partners' smart-beta range, while WisdomTree acquired ETF Securities for $611m.

Head of ETPs at S&P Dow Jones Indices, John Davies, said: "The big will get bigger and the small, if they are lucky, will get swallowed up or, if they are unlucky, will go out of business." 

Matturri added there is a huge advantage in being the first to bring ETFs to market: "The winners in Europe in ten years are already here.

"It may not be the same one, two or three but they are here already and launched ten years ago, as they are the ones that capture liquidity and flows. Success breeds success."

European ETF market

Matturri also noted there is still a belief in Europe that active managers can outperform passives, whereas in the US that belief is long gone.

He said the huge flows into passive products in the US are a function of technology and transparency, as all companies have to disclose everything to everyone at the same time.

However, in Europe, the CEO said investors continue to believe active managers will outperform and this culture is driving flows into these products too.

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Regulation impact

Davies added MiFID II rules, which came into effect on 3 January, will eventually have a major impact on transparency, although this will not be felt straight away.

He said the rules requiring full transparency of fees and reporting on trading, which will enable investors to see the full liquidity of ETFs, are two areas where this impact would be felt.

"That is one of the challenges of Europe as a whole," Davies said. "It is a fragmented market where ETFs are listed in London, Frankfurt and Milan. It is not like the US, which is a homogenous market, so hopefully MiFID II will have an impact from that perspective as well.

"European regulators are trying to force what happened in the US naturally," Matturri added. "In the US, you had this growth of the use of low-cost products and ETFs that developed without regulatory impact.

"It was more because investors were more aware and cost-conscious. In Europe, they are force feeding it as there are a lot of built-in barriers."