A record month for ETF inflows once again shows that the European industry is dominated by a few funds and promoters, says Detlef Glow, Head of EMEA Research at Thomson Reuters Lipper.
The promoters of exchange-traded funds (ETFs) enjoyed their highest monthly net inflows ever in January, with assets under management (AUM) in the European industry rising to €652.9 billion from €632.5 billion at the end of December 2017.
The increase was driven by net sales (€12.5bn), while the performance of the underlying markets contributed €7.8bn to AUM in the ETF segment.
With regard to the overall number of products, it was not surprising that equity funds (€464.3bn) held the majority of the assets.
This was followed by bond funds (€150.2bn), commodity products (€19bn), “other” funds (€6.6bn), money market funds (€2.8bn), mixed-asset funds (€700 million), and alternative UCITS products (€400m).
Fund flows by asset type
Equity ETFs (€11bn) posted the highest net inflows of the European industry for January, followed by bond ETFs (€1.6bn), commodity ETFs (€400 million), mixed-asset ETFs (€200m), and alternative UCITS ETFs (€100m), while “other” ETFs (€300m) and money market ETFs (€300m) posted net outflows.
This flow pattern drove the overall net flows up to €12.5bn for the year 2018 so far.
Graph 2: Estimated net sales, January 2018 (Euro Millions)
AUM by Lipper global classifications
With regard to the Lipper global classifications, the European ETF market was split into 152 different peer groups.
The highest AUM at the end of January were held by funds classified as Equity US (€101.5bn), followed by Equity Eurozone (€55.1bn), Equity Global (€55bn), and Equity Europe (€39.3bn) as well as Equity Emerging Markets Global (€34.3bn).
These five peer groups accounted for 44.3 percent of the overall AUM in the European ETF segment, while the ten top classifications by AUM accounted for 59.5 percent.
Overall, 21 of the 152 peer groups each accounted for more than 1 percent of AUM. In total, these 21 peer groups accounted for €478.4bn or 74.3 percent of overall AUM.
In addition, it is noteworthy that the ranking of the largest peer groups was quite stable, indicating that European investors use the funds from these peer groups as core holdings and not just as so-called satellites that are bought and sold quite frequently to implement asset allocation views in the investors’ portfolios.
These numbers show that AUM in the European ETF industry continued to be highly concentrated.
Graph 3: Ten top Lipper global classifications by AUM, January 31, 2018 (Euro Millions)
The peer groups on the other side of the table showed that some funds in the European ETF market are quite low in assets and may risk being closed in the near future.
They are obviously lacking investor interest and might therefore not be profitable for the respective fund promoters.
Graph 4: Ten smallest Lipper global classifications by AUM, January 31, 2018 (Euro Millions)
Fund flows by Lipper global classifications
With regard to the overall sales for January, it was not surprising that the ten best selling peer groups were dominated by equity funds, since equity ETFs were once again investor darlings for the month.
The best selling Lipper global classification for January was Equity Global (€2.3bn), followed by Equity Europe (€1.4bn) and Equity Eurozone (€1.3bn).
The inflows of the ten best selling Lipper classifications equaled to 87.9 percent of the overall net inflows. These numbers showed that the European ETF segment is also highly concentrated with regard to fund flows by sectors.
Generally speaking, one would expect the flows into ETFs to be concentrated, since investors often use ETFs to implement their market views and short-term asset allocation decisions; these products are made for and therefore are easy to use for these purposes.
Graph 5: Ten best and worst selling Lipper global classifications by estimated net sales, January 2018 (Euro Millions)
On the other side of the table, the ten peer groups with the highest net outflows for January accounted for €1.9bn of outflows.
Bond Europe High Yield (€300m million) faced the highest net outflows, bettered somewhat by Equity Germany (€300m) and Unclassified ETFs (€300m).
AUM by promoters
A closer look at AUM in the European ETF industry by promoters also showed high concentration, since only 19 of the 49 ETF promoters in Europe held assets at or above €1bn each.
The largest ETF promoter in Europe — iShares (€302.2bn) — accounted for 46.3 percent of the overall AUM, far ahead of the number two promoter — Xtrackers (€71bn) — and the number-three promoter — Lyxor ETF (€65.3bn).
Graph 6: Ten top ETF promoters by AUM, January 31, 2018 (Euro Millions)
The ten top promoters accounted for 94.4 percent of the overall AUM in the European ETF industry.
This meant in turn that the other 39 fund promoters registering at least one ETF for sale in Europe accounted for only 5.6 percent of the overall AUM.
Fund flows by promoters
Since the European ETF market is highly concentrated, it was not surprising that eight of the ten largest promoters by AUM were among the ten top-selling ETF promoters for January.
Europe’s largest ETF promoter — iShares — was still the best selling ETF promoter in Europe for January (€5bn), well ahead of Xtrackers (€1.9bn) and UBS ETF (€1.6bn).
Graph 7: Ten best selling ETF promoters, January 2018 (Euro Millions)
Since the flows of the ten top promoters accounted for 98.5 percent of the overall estimated net flows into ETFs in Europe for January, it was clear that some of the 49 promoters (11) faced net outflows (€400 million in total) over the course of January.
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AUM by funds
There were 2,353 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of January.
With regard to the overall market pattern, it was not surprising that AUM at the ETF level were also highly concentrated.
Only 149 of the 2,353 instruments held assets above €1bn each. These products accounted for €397.7bn or 60.9 percent of the overall assets in the European ETF industry.
The ten largest ETFs in Europe accounted for €107.1bn or 16.4 percent of overall AUM.
Graph 8: Ten largest ETFs by AUM, January 31, 2018 (Euro Millions)
ETF flows by funds
A total of 839 of the 2,332 instruments analyzed in this report showed net inflows of more than €10,000 each for January, accounting for €22.1bn of the overall net flows.
This meant in turn that the other 1,493 instruments faced no flows or net outflows for the month.
In more detail only 47 of the 839 ETFs posting net inflows enjoyed inflows of more than €100 million each during January, amounting to €11.5bn.
The best selling ETF for January, iShares STOXX Europe 600 (DE) UCITS ETF, accounted for net inflows of €1.1bn or 8.8 percent of the overall net inflows.
It was followed by iShares EURO STOXX 50 (DE) UCITS ETF (€800 million) and iShares $ TIPS UCITS ETF USD (Acc) (€500m).
Graph 9: Ten best selling ETFs, January 2018 (Euro Millions)
The flow pattern at the fund level indicated that there was a lot of turnover and rotation during January, but it also showed the concentration of the European ETF industry even better than the statistics at the promoter or classification level.
Six of the ten best selling funds for January were promoted by iShares; these accounted for total net inflows of €2.5bn or 20 percent of the net inflows into the European ETF segment.