The attitudes of European and US investors towards European equity ETFs have begun to diverge as the dollar has strengthened in September, with US-listed funds seeing outflows while EMEA-listed products continued to gain assets.
According to BlackRock’s monthly ETP Landscape report, EMEA-listed European ETPs took in further money in September, making this the 13th consecutive month of inflows, the longest on record.
Between March and September, these products have attracted some $17.2bn of investors’ money, according to BlackRock, while September alone brought in $6.8bn, up from $4.9bn the previous month.
US investors were not as keen, however, withdrawing $500m from US-listed European equity products over two months, which BlackRock attributes to currency concerns, as the US dollar has recently begun to strengthen against the euro once again. Currently, the euro stands at $1.1804, down from a peak of $1.2036 in early September.
The report said: “With the European growth outlook strengthening, it seems that currency is playing an increasing role in flows. US dollar gains in September might have encouraged US investors to return to domestic, USD-earning equities.”
This is reflected in the flows data, which shows US equities had a strong month of September, following the revelation of US President Donald Trump’s tax reform agenda, which includes plans to cut the US corporate tax rate to 20% from 35%.
According to the global report, US equity ETPs overall brought in $6.1bn, with the tax overhaul plans attracting renewed attention to small-cap US equities, which gathered $2.8bn.
The financials sector also saw robust demand, reversing its outflows of the previous month to draw in $1.6bn in September. The sector also saw its largest-ever monthly inflows from EMEA-based investors, taking in $500m. Year-to-date, US financials sector ETPs have collected $4.5bn in inflows and are on pace to see their strongest year since 2013.
US financials have been boosted by a number of events in the country, not least Trump’s tax reform plans, as well as the expectation of further rate hike from the US Federal Reserve.
In September, the Fed officially announced it would begin balance sheet normalisation and increased expectation for future rate hikes; meanwhile, the European Central Bank is also expected to announce plans to wind down its QE programme in early 2018, adding further support to banking assets.
Commenting on the lower demand for US financials sector ETFs from European investors, BlackRock said: “US investors seem to be more familiar with using ETFs to express views on specific US sectors than European investors.”
The graph below shows the flows and performance of US financials stock ETFs year-to-date (as of 13 October), based on TrackInsight data.