Europe Monthly ETF Market Review – €550m into Southern Europe, €1bn out of Euro STOXX 50
Equities in Developed Europe saw a pull-back in March, underperforming both the US and Emerging Markets. This was driven primarily by poor equity market performances in the UK and Germany. ETF cash flows reflected this performance where we observed c.€1bn of net outflows from the equity asset class while the fixed income asset class continued to see inflows (+€1.9bn). Despite this set back, our strategists remain constructive on Europe and have recently upgraded their target for the FTSE 100.
Significant investment pulled out of Euro STOXX 50
The bulk of the equity outflows in Europe were from ETFs tracking the Euro STOXX 50 index where we observed approximately €1bn of outflows. This was the largest redemption among any of the segment or sub-segment level for the month of March.
Southern Europe continue to attract more inflows
ETFs with Southern Europe exposure countered the broad market trend for the month by seeing continued inflows in March. The net cash inflow almost doubled the monthly inflow we observed in February indicating investors’ conviction on further equity upside for the region. ETFs listed in Europe with exposure to this region saw over +€550m of inflows in March. A similar trend is also observed in the US, implying that US investors are sharing the same sentiment.
EM equities saw outflows despite strong market performance in March
MSCI Emerging Markets was up just over 3% in March which brought its YTD performance to almost flat. Despite this rebound in performance, ETFs tracking broad Emerging Market indices experienced net outflows (-$211m in Europe, – $48m in US) suggesting investors are still maintaining their cautious view on the region in anticipation of further tapering in the US.
Large flows into Fixed Income ETFs
Similar to previous month, investors trading European listed instruments exercised caution by channelling another +€1.9bn into fixed income ETFs (+€1.9bn in Feb). However, this time corporates edged over sovereigns in contrast to the previous month.
DeAWM completes switch of 18 funds from synthetic to physical
Deutsche Asset & Wealth Management (DeAWM) announced last year its plan to convert 18 large synthetic based ETFs to physical over a period of 6 months during 1H 2014. DeAWM has now completed this exercise for all of these ETFs. The set of 18 funds make up a total AUM of close to $10bn and post this switch, physical based ETF market share have now moved to 71% from 67% at the end of last year.
Vanguard dominates cash flows globally
Vanguard ETFs have been accumulating notable inflows across various products this year. Year to date, we have observed +$13.1bn of net inflows into Vanguard US listed products which represented 90% of the total US ETP net flows. In the US, Vanguard has now edged closer to second place on the provider rankings table, closely behind State Street. State Street, in contrast, experienced -$18bn of outflows this year, primarily from its flagship product SPDR S&P 500 ETF (SPY US) as cautious investors took profits from US equity markets.
As widely known, Vanguard ETFs offer cost efficiency where the total expense ratios (TERs) for most of its ETFs are much lower than other large players in the US markets. Vanguard ETFs’ asset weighted TER is 0.11% in comparison to 0.32% and 0.20% for BlackRock and State Street respectively.
Download the complete report Europe Monthly ETF Market Review – €550m into Southern Europe, €1bn out of Euro STOXX 50
