Germany has a strong, developed economy with mature financial markets. This is clearly a prime opportunity for the growing ETF market. I had the opportunity to meet with Michael Huber, the Business Development Director for PowerShares Germany and Austria. Michael is based in Munich, but he has a great view of business across Germany and Austria. Michael is a very impressive person, and he fits the PowerShares mold—bright, articulate, innovative, and service-oriented. Thanks to Kevin Connolly and Bryon Lake for arranging this meeting.
We had a detailed discussion about the ETF market. While most ETF users in Germany are institutional investors, it is clear that there are growing opportunities as German wealth managers and advisors move to a fee only model. At his suggestion, I looked at Germany ETF information from Extravest.
Germany and Austria account for roughly 20% of the ETF market in continental Europe. Germany is one of the largest ETF markets, with more than 1,000 listed products. However, the top 50 ETFs make up about half of the total market. It was interesting to see that a “home country/region bias” exists among German ETF investors. Of the total ETF assets, 20% are in DAX products (Germany’s benchmark equity index), 20% in the EuroStoxx 50 (Germany has more than 25% exposure), 17% in the S&P 500, 11% in MSCI World, 8% in MSCI Europe, and 3% in EuroStoxx 600.
Given Michael’s background, he was able to provide insightful analysis on both European and German financial markets. He had extensive experience trading Greek bonds in a previous job, and we talked extensively about Greece. He was not surprised by the “No” vote in the Greek referendum.
My time with Michael emphasized the value of understanding the nuances that exist in each financial market. Our discussion pointed out the differences in the German economy between the Northern part of the country and the Southern part of the country. The divide between East and West remains very material. Germany’s west has subsidized the East for more than two decades, and this highlights some of the political and economic willingness to subsidize the Euro project.
In general, working in Europe can be complicated. There are clear differences across countries, and it is increasingly important to understand these differences. After our conversation, it is easy to see why Germany has a strong economy and deep financial markets.
Special thanks to Brennan Staheli, Joseph Hirschi, and the Lunt Capital team for their contributions to this report.