European Money Managers Increase ETF Holdings

July 16, 2003 ( - Europeans institutions have increased their inventories of US listed exchange-trade funds (ETF) and Holding Company Depository Receipts (HOLDRS) by 20% in the past year.

Europe was leading the pack in the pick-up of additional US-listed basket of stocks, where worldwide their use only grew 15%.   Over the past three years now, the number of European money managers that have invested in their baskets of stocks has skyrocketed to 295 institutions from just 32, according to data from Morgan Stanley, reported by IP&E.

Within year, the most substantial pickups using these investment vehicleshave occurred in Italy, up 45% to 29 from 20 institutions.   This was followed by the number of institutional additions in the UK up 33%and Spain, up 24%.

Additionally, the Morgan Stanley research pointed toward signs that indicate the use of ETFs by investment funds is expected to continue to increase over the coming year in both number of users and amount invested. This is as a result of recent exemptive relief granted by the US Securities and Exchange Commission (SEC) and the implementation of UCITS III in Europe.

Under current regulations, a UCITS fund is typically allowed to invest only up to 5% of its assets under management in other funds including ETFs that are UCITS compliant. Under UCITS III, however, the ceiling jumps to 100% of a UCITS fund’s net assets that are eligible for investment in other funds subject to certain guidelines.

While US listed ETFs still appear to be king, institutions are also looking within the continent for holdings.   In terms of holding European-listed ETFs Spain is top of the leader board with 10 institutions. Sweden, Germany and the UK follow respectively.

ETFs are open-end investment funds that trade on exchanges.