A quarter of a century after starting work on Europe’s first ETF and building what would become the continent’s largest ETF shops, Manooj Mistry, COO at HANetf, said the wrapper’s disruptive potential is now forcing previous naysay fund houses to consider entering the market.

With Mistry’s role in the industry being recognised with Outstanding Contribution To ETFs at the ETF Stream Awards 2024, he reflected on a delivery vehicle which has evolved from unlikely meetings with now-absorbed businesses to a $2.3trn ecosystem.

Genesis years

After five years specialising in structured products for UK boutique Johnson Fry – now Legg Mason – a fund collaboration saw Mistry’s team partner with Merrill Lynch.

“At the time they were working on an ETF project and not getting very far, so they were looking for someone who could help get it done,” he said.

“I had sort of heard of ETFs but did not know too much about it. It was the pre-Google days. I thought, ‘sure, I will give it a go’.”

At the time, ETFs had been brought to the attention of Merrill Lynch’s investment banking arm by the take-off of early US-listed trading products such as the SPDR S&P 500 ETF (SPY), prompting its asset management subsidiary – Merrill Lynch Investment Managers – to partner with exchange providers in Europe to launch its ‘Leaders’ ETF brand.

“The idea was in an ideal world, an ETF could be listed on exchanges in Frankfurt, Paris and Zurich on the same day as a big bang launch.

“This did not happen, because each regulator had its own timeframe, as much as the exchanges wanted it to happen. This was in the days of pre-UCITS III, so no fast-tracking or passporting, you had to go through quite a lengthy process.”

Regardless, Merrill launched its first ETFs – a pair of Dow Jones STOXX 50 trackers – launched on the Deutsche Boerse in April 2000, two weeks before Barclays Global Investors (BGI) listed its FTSE 100 ETF on the London Stock Exchange, in what was a “bit of a race to the moon moment”, Mistry said.

BGI and its iShares brand would go on to form part of BlackRock’s ETF empire in 2009, but not before Merrill’s 12-ETF-strong business was acquired by the US asset manager in September 2003.

“We had 9/11 and the ‘dotcom’ crash and Merrill Lynch decided it was not for them. Asset management products are long-term, fee-earning annuity products, whereas at the time they were after instant revenues,” Mistry said.

Europe’s largest organic ETF issuer

Rather than moving with the ETF business, Mistry worked on structured products at Merrill for another two-and-a-half years, before receiving a call from a head-hunter at Deutsche Bank about building an ETF business.

“I started in May 2006 and worked with a chap called Thorsten Michalik – now at HSBC Asset Management – and he and I built the Xtrackers business, with him on the marketing and distribution side and me on product set-up.”

A fourteen-year tenure at the firm saw Mistry play a leading role in Xtrackers’ shift from Deutsche Bank to its asset management arm – DWS – in 2012, alongside an overhaul from being a 100% synthetic ETF provider to one offering physical replication across more than 70% of its range in the wake of the Global Financial Crisis (GFC).

“Xtrackers remains Europe’s largest organically grown ETF business in Europe, rather than being grown by acquisition,” he said.

He also oversaw the launch of ETFs which have been mainstays in European investors' tool kits this year, including the $13.1bn Xtrackers II EUR Overnight Rate UCITS ETF (XEON) and $14.6bn Xtrackers S&P 500 Equal Weight UCITS ETF (XDEW).

Continuing to build ETF businesses

After leaving DWS and before his current role at HANetf, Mistry passed a few months during COVID-19 lockdown in an advisory capacity at HSBC AM, working entirely remotely.

“When I was there, their ETF and indexing businesses were two separate lines and one of the things I suggested was bringing it together, which they have done,” he said.

By early 2021, Mistry had joined white-label provider HANetf, which had just passed $1bn assets under management (AUM) owing to risk-on sentiment spurring demand for the thematic and crypto strategies the firm specialised in at the time.

“At large asset managers, you are innovating but the pace is much slower, whereas HAN is there to help businesses who want to take the risk and launch a product.

“When HAN started, a lot of the partners were small, fellow entrepreneurs. Now we have a track record and credibility, big players are talking to us.”

The bulk of client queries now, Mistry said, are active managers looking at their ETF strategy and how to come to market amid fee margin pressure, a changing distribution landscape and fear of competition getting there first.

“When we talk to managers looking to come onboard, we say they should not stop what they are doing. They are not here to compete with iShares; they are here to enhance what they are doing already with another delivery vehicle. “

Much as multi-asset managers and fund-of-funds began looking at ETFs – synonymous with index tracking – in the 2000s, legacy fund managers are now at an inflection point.

“Going forward, we will likely see traditional asset managers launching more ETFs than mutual funds and perhaps even mutual fund closures as they rationalise their product ranges.”