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ETFs in Europe: Flows in Q3 2019 Rebound

Assets cross EUR 800 billion while ESG ETF flows jump to EUR 4.3 billion

Kenneth Lamont


Exchange-traded funds flows are often useful indicators of investor sentiment. Below we take a closer look at the net flows of ETFs in Europe in the third quarter 2019, highlighting trends and calling out the winners and the losers. 

Over the quarter, ETFs in Europe attracted EUR 24.8 billion of net inflows, up from EUR 9.2 billion in the previous quarter. Assets grew by 9% over the quarter to EUR 839 billion, breaching the EUR 800 billion mark for the first time. 

Equity ETF flows rebound 

Weak economic indicators and a flare-up in the trade tensions between the U.S. and China sent jitters through global equity markets in August. However, backed by a confidence-boosting string of restorative rate cuts and dovish statements emanating from the U.S. Federal Reserve, September brought a flood of money rushing back into equity ETFs in Europe. This flood netted EUR 8.1 billion in new money overall in the quarter to more than offset the EUR 4 billion in outflows in the second quarter. 

The broad-developed equities, U.S. large-cap equity, and global large-cap Morningstar Categories were the main beneficiaries, whereas global emerging markets took the brunt of the outflows. Closer to home, signs of a thaw in Brexit negotiations benefited both U.K. and eurozone equity ETFs. In particular, the iShares Core FTSE 100 ETF, MSCI EMU ESG Screened ETF, and EURO STOXX 50 ETFs were on the receiving end of healthy asset flows. 

Fixed-income ETF flows remain strong 

Another strong quarter for fixed-income ETFs in Europe had net inflows of EUR 13.6 billion pushing assets to EUR 222.2 billion. Barring a strong reversal of fortunes in the fourth quarter, fixed-income ETFs are poised to mark their best-ever year in terms of flows. Furthermore, 2019 is likely to be the first year ever when flows into bond ETFs surpass their equity counterparts. 

As short-term rates remained below zero across developed Europe, investors continued to flock to instruments promising a positive yield. Shunning European debt—particularly short-term exposures—investors favoured the USD government bond and EUR corporate bond Morningstar Categories. Other higher-yielding ETFs also benefited from flows, namely those in the U.S. high-yield and global emerging markets Morningstar Categories. 

As the spectre of rising rates receded, bond ETFs offering upside rate protection like the iShares USD Floating Rate Bond and the Amundi IS Floating Rate USD Corporate ETFs suffered notable outflows over the third quarter. 

ESG ETFs in Europe register record flows  

ESG ETFs registered their strongest performance to date, raking in an impressive EUR 4.3 billion in net new flows, up from EUR 2.6 billion the previous quarter. This represented 17% of total ETF flows over the third quarter and lends further weight to the view that ESG investing is gaining momentum. That said, ESG ETFs still represent just 2.5% of the total ETF market, thus indicating plenty of room to grow. 

Developed equities were the main beneficiary, with iShares MSCI EMU ESG Screened ETF alone scoring EUR 572.6 million of net inflows over the third quarter. Mirroring flow trends in the broader fixed-income market away from floating-rate exposures, Lyxor USD Floating Rate Note ETF saw the largest outflows. 

Thematic ETF flows 

Thematic ETFs attracted over EUR 100 million in net new money in both the second and third quarters, more than offsetting the outflows experienced in the previous two quarters. 

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