The European exchange-traded-fund market attracted €11.5bn in net new money in the fourth quarter of 2016, bringing the grand total for the year to €47.9bn, according to Morningstar’s ETF fund flows report for Q4 2016. Assets under management (AUM) for the European ETF industry increased to €546bn from €466bn in 2015.
Jose Garcia-Zarate, Associate Director of Passive Strategies Research for Morningstar.
Equity ETFs saw a turnaround in fortunes in the fourth quarter and closed 2016 with net inflows of €13.6bn. US exposure was strongly favoured, whereas emerging markets took a knock after the US election.
Jose Garcia-Zarate, Associate Director of Passive Strategies Research for Morningstar, commented: “The rotation to equities – mostly developed markets – gathered speed after Trump’s victory in the US election. US equity holdings were particularly favoured, with investors taking a broad positive view about the incoming US President’s economic views. Meanwhile, emerging market equity ETFs were on the back foot in the fourth quarter on a combination of a strengthening USD and concerns that Trump’s protectionist views mean trouble for these countries.”
AUM in equity ETFs amounted to €356bn at the end of 2016, up from €319bn a year earlier, implying capital appreciation of €23.9bn on top of the net inflows.
Fixed income ETFs saw net outflows of €2.5bn in the fourth quarter as “risk-on” sentiment and higher US interest rates took their toll.
“Sentiment around fixed income in the latter stages of 2016 was strongly conditioned by the firm expectations and subsequent delivery of an increase in interest rates by the US Federal Reserve,” said Garcia-Zarate. “Unsurprisingly, US government bond ETFs and, above all, emerging market debt, were on the back foot. The prospects for these markets into 2017 has turned sour, as the Fed has hinted at more rate hikes.”
Despite this, fixed income was a success story for the European ETF industry in 2016, pulling in €20.6bn in net new money. Fixed income ETF AUM grew to €131bn from €105bn in 2015. Fixed income ETFs now represent 24.1% of the European ETF marketplace, up from 22.6% a year earlier.
Garcia-Zarate notes: “Irrespective of the fortunes for the asset class, ETFs have made great strides in being accepted as investment vehicles for fixed income. There remain concerns and an ongoing need for education, most notably around the issue of ETF trading and liquidity. However, all ETF providers concur in identifying fixed income as one of their key growth areas in the coming years.”
Commodity ETCs and ETFs saw an increase in AUM to €43bn in 2016 from €28bn in 2015, but investors lost interest in the asset class in the fourth quarter, withdrawing €0.9bn in net outflows.
Strategic-beta ETFs netted in €9bn of new money in 2016, representing 19% of the total money flowing into European ETFs and was strongly up from 10% in 2015. AUM grew to €43bn in 2016 from €31bn in 2015. In the context of the European ETF market, strategic-beta products now take up a market share of 8%, up from 6.6% in 2015.
iShares was the most successful gatherer of net new assets in 2016 for the region, pulling in €26.4bn of new money and retaining a 46% market share. It was a bad year for db x-trackers, which experienced outflows and lost market share. By contrast, smaller providers such as State Street, Vanguard, UBS and Amundi gained ground.