ETF and mutual fund flows show major differences in third quarter

Nov 8th, 2016 | By | Category: ETF and Index News

While European investors in both exchange traded funds and mutual funds poured into bonds during the third quarter of 2016, ETF and traditional active fund flows majorly diverged when it came to equities, alternatives and money markets.

ETF and mutual fund flows show major differences in third quarter

Detlef Glow, head of EMEA research at Thomson Reuters Lipper.

According to new data from Thomson Reuters Lipper, the European fund industry saw net inflows of €81.8bn into long-term funds between July and September, with ETFs making up almost 19% of flows at €15.4bn.

Within ETF flows during this period, bonds were the most popular asset class, gathering €9.1bn. Equities were in second place at €5.1bn and commodities saw inflows of €1.0bn. Alternative ETFs, however, saw outflows of €0.2bn, and investors pulled €0.03bn from mixed asset ETFs.

While fixed income remained the best-selling asset class of the quarter for mutual funds, at €61.5bn net inflows, money market funds were the second most popular at €35.7bn, and mixed asset funds gathered €18.5bn.

Money market ETFs were not popular in a positive market environment, according to the Lipper report, as investors withdrew a net amount of €0.5bn.

Detlef Glow, head of EMEA research at Lipper, told ETF Strategy that the differences in flows were common as investors tend to employ different vehicles for alternate purposes.

“ETFs are often used as short-term investments to gather exposure to specific markets or asset classes, while mutual funds are rather long-term products, since it takes a while until they are producing the expected alpha from the active management,” he said. “Secondly, in times of higher volatility, investors like to hold transparent products as this may help them to estimate the market risk in their portfolio and therefore investors might sell actively managed products and buy into passive.”

Commodity funds gathered €1.1bn overall during the quarter, the vast majority of which came from ETFs.

“ETFs are a good tool to invest in the commodity sector, since investors get exactly the exposure they are targeting and there are a number of different indices with totally different exposures – ex-energy, and so forth – available,” Glow said.

Another major discrepancy between mutual fund and ETF flows between July and September was seen within equities. Overall, the asset class saw outflows of €3.6bn, despite equity ETFs posting the first quarter of positive net gatherings for 2016 with over $5bn net inflows.

Overall, investors piled €12.8bn into emerging market equities, but it was not enough to counteract the amount of cash being redeemed from Japanese, pan-European and Eurozone equity exposures. US equities also fell out of favour as some investors believed valuations to be overstretched, perhaps signalling the eight year bull run of the S&P 500 may be drawing to an end.

Total assets in the European fund industry stand at €9.0tn at the end of the third quarter – ETF assets in Europe account for €480.1bn, giving them a market share of 5.3%.

The share may be relatively small, but it has risen significantly since 2003, when total assets in long-term funds in Europe amounted to approximately €3.5trn and ETF assets were only €17.3bn.

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