European ETF flows: Data show investors prefer physically-replicated ETFs

Apr 12th, 2012 | By | Category: ETF and Index News

In their latest Monthly European ETF Market Monitor report edited by Ursula Marchioni, Head of ETF Sales Strategy, Credit Suisse ( reported European ETF asset flows for March 2012. Following is a roundup of the key themes.

European ETF flows

Assets under management (AUM) in the European ETF market rose 10.84% to $299.60bn at the end of the first quarter of 2012. Investors showed a clear preference for physically-replicated products.

Assets under management (AUM) in the European ETF market rose 10.84% to $299.60bn at the end of the first quarter of 2012, compared with $270.30bn at the end of December, 2011

The regulatory and economic clouds of uncertainty overshadowing the European ETF landscape in the second half of 2011 have thinned somewhat, but have not faded away completely. This is clear from the trend in inflows into the European market during the first three months of the year, which were 35.82% lower at $6.03bn compared with Q1, 2011. Q1 aggregate flows also continued to show a preference for physically replicated funds

Q1 2012 flows were dominated by three clear trends:

i) A clear preference for debt ETFs, specifically for corporate bond trackers and funds providing access to emerging markets debt instruments. The flows in these exposure accounted for $1.95bn over the quarter, having been particularly sustained in January and March;

ii) Investors exiting money market ETFs – which recorded outflows for the quarter of $1.26bn, the worst performance among all asset class clusters;

iii) A slow down in client appetite for equity trackers. After a good start of the year, with January net new assets (NNA) of $2.18bn, flows slowed down progressively and accounted for a very small $271m in March – ending Q1 at $3.99bn, a mere 50.84% of the flows recorded by equity ETFs in Q1 2011

Among the top ten providers (in terms of AUM) Q1 net new assets were mixed. iShares, Source and UBS recorded the highest inflows – while ComStage, db x-trackers and CS ETFs recorded outflows

Looking at Q1 flows, iShares benefited particularly from client interest in fixed income ETFs. Out of the top three funds in terms of Q1 NNA, number one was their Euro Corporate ex financials products; number three, the overall Euro Corporate tracker (number two being their EM tracker).

Source appeared to be the provider of choice for innovative products, such as volatility strategies aimed at capturing spikes in the parameter – or hedge fund liquid indices replicators.

UBS finally benefited from more conservative client interest in their CHF-domiciled Gold trackers, together with ETFs tracking different maturity buckets of the German sovereign bonds curve.

Separately, Credit Suisse talked about how the CS ETF platform had undergone significant changes in the last six months and particularly in the first quarter of 2012, with a return to fundamental ETF principles – quality, trust and transparency.

Formerly a vocal proponent of the synthetic swap-based ETF model, Credit Suisse has now come out in favour of the physically-replicated approach. This shift was reflected in the conversion of an additional 11 ETFs from synthetic replication to physical replication (Credit Suisse to convert seven ETFs from synthetic to physical).

In a further move designed to improve the transparency of its ETF products, Credit Suisse has refined its securities-lending programme across the Swiss, Luxembourg and Irish platforms. Credit Suisse now publishes on a daily basis the composition of the collateral accepted by six Irish, three Luxembourg and four Swiss-domiciled funds engaged in securities lending.

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