Nearly all fund selectors in the country are active and sophisticated users of passives. The share of the portfolio reserved for passive strategies varies greatly, from 7% up to 70%, but is generally on the rise. None of the interviewees will decrease their allocation to index-trackers, and four in ten will increase it in the next 12 months, compared to a little over a quarter of fund buyers on average in Europe.
Factor-based investing, based on factors such as momentum, value, small cap and low volatility,
is gaining prominence in the Netherlands. And most fund selectors buy into this trend through so-called smart beta products. One of them even told me he uses smart beta passives as the core of his equity portfolios. Just one fund selector dismissed the category, arguing smart beta products are simply too expensive compared to ‘normal’ index-funds. Most fund buyers in the Netherlands also use this sort of trackers, mainly for tactical asset allocation purposes, to gain cheap beta exposure.
Europe lagging behind
Assets held in index-trackers in Europe have grown by 140% since 2009 to €760bn by the end of 2014. This is just 7% of total assets under management on the continent, compared to more than 35% in the US, suggesting there is still a long way to go for passive investments.
According to EIE data, ETF usage is more widespread in the Netherlands than in any other European country. Some 95% of fund buyers there use index-trackers, compared to 70% on average in Europe. Luxembourg is the only other country in Europe where more than nine in ten fund buyers use ETFs. A reason for the popularity of ETFs in the Netherlands is probably the abolition of distribution fees last year, anticipating on the implementation of the MiFID II directive. This had made investors in the country more cost-aware, providing a boost to lower-fee products like ETFs.