Europe – a history of innovation and a future of sustainability
1Source: The Balance, May 2021
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
With ageing populations, expectations for higher correlations between asset classes, and rising inflation there has never been a more urgent time for investors to have access to financial markets, and opportunities abound in Europe.
From its fast-growing emerging countries to traditional powerhouse economies like Germany, Europe offers a unique depth and breadth of options for investors. Many of the world’s leading entrepreneurial mid cap businesses are listed in Europe – providing compelling investment opportunities.
Key investment themes
Across Europe we see three key trends that will impact and drive the future state of investors’ portfolios. These include:
In the early stages of a tectonic shift of capital1, investors moved their money into sustainable investments at six times the growth rate of traditional investments. With assets globally now totaling $4 trillion across all ESG categories2 we believe this growth will continue and accelerate.
European investors are increasingly introducing sustainable portfolio objectives alongside traditional risk/return targets. In response to increased awareness and demand to incorporate environmental, social and governance (ESG) considerations into portfolios and with the introduction of both local and EU-wide sustainable disclosure regulations, net zero commitments are also being announced.
BlackRock’s European based investment stewardship team support engagement with companies, big and small, at all stages of their sustainability integration journey to promote sound corporate governance and sustainable business models. This can help drive the long-term financial returns that enable our clients to meet their investing goals.
Our approach to sustainable investing
1https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/sustainability-in-portfolio-construction
2 Sources: Morningstar, Simfund, Broadridge. Data includes Sustainable Mutual Fund, ETF, Institutional and Alternative AUM, as defined by third party data sources, excluding integration/engagement flags. MF and ETF data as of Oct ’21, Institutional & Alternatives data as of Jun ’21.
The democratization of private markets continues to gain momentum across Europe1. The majority of investors in private markets have historically been pension funds, insurers, and other large professional investors, but an increasing number of opportunities are opening up to less sophisticated or less wealthy individuals as product innovation accelerates. Large private market firms are increasing their resources in retail intermediary distribution and looking to develop innovative products. And a number of semi-liquid products in the market already target retail investors across Europe. Some of these semi-liquid funds offer monthly or quarterly subscriptions and redemptions; others, such as investment trusts and ELTIFs, provide less liquidity.
Exposure to private assets has often been limited by regulation to protect less sophisticated investors. However, that is changing rapidly, with new regulation increasingly opening private market opportunities to retail clients. The EU’s European Long-Term Investment Fund Regulation is a good example of how a review of a certain regulatory framework can lead to the rapid uptake of private assets within retail distribution channels.
1 European private assets have been growing steadily in recent years: Cerulli estimates that they increased from €795 billion (US$900 billion) in 2015 to €1.9 trillion as of June 2021. Source: The Cerulli Report, European Alternative Investments, 2022.
ETFs and indexed funds continue gaining traction amongst European investors. From instructional clients to execution only, these vehicles are a highly sought-after instrument to build portfolios.
We believe that successful investors stand out because of their:
- higher index adoption
- higher adoption of illiquid and ‘real’ alpha-seeking strategies
- deliberate and adaptable approach to blending these solutions
In line with this, we have seen an ongoing shift to index strategies amongst investors1, with both distributors and end investors changing their perception of the role and value of index vehicles.
In fact, we have witnessed a 62% growth in indexed assets in EMEA over the last 5 years, with $3.9tn now managed by indexed products2. A trend that continues to accelerate as clients look for transparent and efficient building blocks to implement their investment convictions or save and invest for retirement with simplicity.
1 BlackRock Portfolio Analysis and Solutions, from January 2017 – January 2022.
2 Source: BlackRock Global Business Intelligence and Broadridge, as at 31 May 2020. Includes ETPs and Index Pooled Funds only.
Your team on the ground
1 BlackRock, May 2022
We are deeply embedded in Europe, with more than 3,000 employees in 20 offices1 in cities from Athens to Zurich. This gives us local expertise and allows us a more detailed perspective on the areas in which we operate and invest. We share our knowledge, experience, and insights with our clients through our experts on the ground, as shown on the map. These include investment teams, client solutions, technology and thought leadership.
Risk: While proprietary technology platforms may help manage risk, risk cannot be eliminated.
