investors poured over USD7 billion of net new assets into European Exchange Traded Products (ETPs) in the first quarter of 2012. While equity and commodity products are as popular as ever, interest in volatility and fixed income ETPs has also surged.
Source continued to cement its position in the European ETP industry, capturing net new assets of over USD1.2 billion and launching innovative products in alternative, fixed income and commodity asset classes. According to ETF Global Insight and Deutsche Bank Research, at the end of Q1, Source was ranked 2nd in Europe and 6th globally in terms of net new assets year to date.
Volatility is one of this year’s key stories. According to Bloomberg data, volatility ETPs captured over USD900 million in new assets in Q1. A calmer period in global markets combined with rising equity prices produced a good entry point for volatility exposure particularly as a hedge for equity positions. Innovation in delivering volatility exposure offers investors more efficient medium term investment opportunities. Source has quickly become the market leader in volatility-linked ETFs, with three new products in Q1 and assets of over USD850 million, a market share of over 85%.
Another standout asset class in Q1 was fixed income. European fixed income ETPs saw net inflows of over USD900 million in Q1, compared to net outflows in the same period last year. Source’s product flows reflect this trend, with particularly strong demand for the new PIMCO Source Short-Term High Yield Corporate Bond ETF (STHY). This physically invested ETF is the first in Europe to provide access to the global short maturity high yield sector, an area which has historically provided a defensive alternative to equities while producing similar returns with substantially reduced volatility. The ETF benefits from PIMCO’s “smart passive” approach. Its construction addresses investor concerns regarding both high index tracking error and the narrow security coverage of many existing high yield alternatives. Since its launch on 19 March, the fund has already attracted USD85 million in assets.
Finally, although the first quarter was challenging for the performance of commodity assets, investors continued to increase their exposure to gold and broad commodity markets. The Source Physical Gold P-ETC saw USD102.8 million of inflows and the LGIM Commodity Composite Source ETF, which was launched early January managed to capture over USD88 million of new client money.
Although European equity trading volumes were in the region of 18% lower on the quarter, ETF trading turnover held up well and Source continued to see outsized activity in its funds with USD14 billion of gross primary turnover on an asset base of USD9.3 billion. Exchange traded instruments continue to prove, by the inflow of investor assets, that they remain one of the pre-eminent multi investor solutions in Europe.