European investors continued to support equity ETFs in February despite a correction earlier in the month, but the overall mood in the global market was to take risk off the table.
Overall, exchange traded funds tracking global stock markets saw withdrawals of €4.5 billion during the month, according to the latest monthly ETF Market Flow Analysis from Amundi.
However, the outflows came predominantly from US-based investors, who pulled €12.4 billion out of equity products during the month, with the majority of outflows coming from their home market.
American investors have been spooked by volatile trading conditions on Wall Street and a correction in the flagship S&P 500 index, leading them to withdraw nearly €18 billion from the US stock market during the month.
The volatility has been largely fuelled by concerns about rising interest rates and sky-high valuations. US-listed stock ETFs have attracted nearly $1 trillion in total inflows over the past five years, according to the Financial Times, and investors are concerned the rally may have gone too far.
The latest correction in early February saw the flagship S&P 500 index fall some 10% from its record highs, but since then the index has regained some ground again and currently sits at 2,752 points.
European investor support
However, European investors refused to be unnerved. During February, they poured €2 billion into US equity ETFs, making this the most popular geography.
They were supportive of stock markets as a whole, commiting some €5.2 billion to equity ETFs in February.
Apart from North America, Eurozone equities also attracted strong demand, taking in nearly €2 billion themselves.
Emerging markets, sector and smart beta ETFs were also in favour. Emerging market equity ETFs were also in favour with US investors, despite their wariness towards equities as a whole, with €2.7 billion flowing into this asset class from American buyers.
The only other equity sector which saw strong demand from US investors was world equities, which took in €5.3 billion in February, but this time it was European investors that were lacking confidence; they withdrew some €2.7 billion from world equities during the month.
Will Europe catch up with the US?
For some market participants, the risk aversion of US investors in February is a potential sign the support for ETFs in the US is waning, but many believe European-listed exchange traded funds have a long way to go before they catch up with the US. So far this year, European ETFs have already seen $25.9 billion of inflows, according to EPFR.
Investment bank Citi is predicting assets in European listed ETFs will triple from $811 billion to round $2.2 trillion by 2022. This will get the proportion of ETFs in the European market closer to the US: in North America, ETFs currently make up 17.7% of total market assets, versus just 4.7% in Europe.