Inflows into European ETFs over the first seven months of the year have surpassed the record total amount that went into these vehicles in 2016 as a whole, as their popularity continues to grow.
Between the beginning of January and the end of July 2017, European-listed ETFs and ETPs gathered some $74bn of net flows, according to data from ETFGI. This is more than double the net inflows seen at the same point last year, which stood at $32bn and nearly 50% higher than the record inflows of $56bn seen in 2016.
July alone brought inflows of $10.2bn, marking the 33rd consecutive month of inflows into exchange-traded products listed in Europe, and suggesting European ETFs and ETPs could be on track to draw more than $100bn of net inflows by the end of 2017.
Total assets in European ETFs/ETPs have increased by 22% during the first seven months to stand at a new record of $700bn.
Why so popular?
So what has been the driving force behind this sharp acceleration of flows? A key consideration for investors is the low cost of passive vehicles compared to actively managed funds, against a growing body of research suggesting many active managers are failing to deliver genuine alpha.
The debate about the value added by active managers has intensified this year, with the UK financial regulator (Financial Conduct Authority) publishing a report on the asset management industry which highlighted concerns over underperforming active funds charging high fees.
Money managers are also feeling the squeeze as the MiFID II regulation, set to come into force in January 2018, will force them to offer even more transparency around the fees they are charging their end investors, which could be a reason for some multi-asset managers using more cost-effective products in their portfolios.
Meanwhile, global geopolitical tensions are making the ETF structure more attractive, as they allow investors to trade in real time and make quick allocation moves in an uncertain environment.
Where have investors parked their money?
Investors have shown a clear preference for equities so far this year, despite the geopolitical turmoil, with a record $43bn going into European-listed equity ETFs and ETPs in the first seven months, compared to net outflows of $1.7bn over the same period last year.
This trend can be observed worldwide (see chart below which covers 70% of the ETF market listed in Europe and the US), despite recent equity performance being lacklustre.
However, bonds have lost some of their popularity, taking in $20bn over the period compared to $22bn for the same time last year. One explanation for this could be fears over central bank tightening, with the Federal Reserve firmly on a path to higher interest rates and a normalisation of its balance sheet.
Commodity ETPs have gathered $8bn over the seven months, also lower than the $10bn they took in during the same time last year.
For ETF providers, the rush into these products is clearly good news; in Europe, iShares has seen total inflows of $24bn over the period, followed by UBS ETFs with $9.3bn and Lyxor AM with $8.8bn.