Fixed income products accounted for more than 90% of European ETF industry net inflows in the first half of 2019, according to financial research firm Cerulli Associates.
Fabrizio Zumbo, Associate Director, European Asset Management Research, Cerulli.
The asset class also recorded its highest-ever quarterly inflows in Q1 2019, raking in €18.5 billion in net new assets over that period.
The findings represent a significant departure from previous years when equity ETFs dominated investor demand, capturing 72% of total inflows in 2017 and 68% in 2018.
Fabrizio Zumbo, Associate Director, European Asset Management Research at Cerulli, commented, “Bond ETFs continue to gain traction. Bond ETF assets grew strongly in the first half of 2019, from €162.5bn to €200.7bn. This was on the back of a more than 7% increase in bond ETF assets during 2018.”
Cerulli notes that demand for ETFs in Europe is expected to keep growing due to increasing awareness of the benefits of the ETF wrapper including cost-effectiveness, diversification potential, and versatility in time-specific or niche exposures. Cerulli sees future growth coming from several corners of the market including institutional investors, private banks, and wealth managers.
Smart beta products have been highlighted as a continuing source of expansion for the industry. According to a survey of European asset managers conducted by Cerulli, 38.9% of respondents expect smart beta products to grow rapidly in the institutional space, while a further 44.4% anticipate moderate growth.
Additionally, a growing number of active managers are unveiling ETF propositions which are likely to drive growth further.
Zumbo said, “ETF issuers are offering more innovative and niche products, while financial advisors are seeking to fully capitalize on ETFs’ wrapper potential. We expect demand for ETFs from advisors to rise in tandem with the increasing adoption of ETFs as building blocks for portfolio construction. Direct-to-consumer platforms and robo-advisors are also set to boost demand for ETFs among retail clients.”
Along with impressive growth in the industry, Cerulli also notes that competition within European ETF markets has intensified, with the arrival of new players spurring incumbents to broaden their product ranges.
“Nowadays, a standardized value proposition may no longer be enough to attract flows,” said Zumbo. “ETF issuers need to consider specialized and diversified offerings that include environmental, social, and governance (ESG); thematic; and smart beta products to differentiate themselves.”