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European ETF cash flows pick up in Europe over June


June brought EUR2.0bn of flows to the European exchange-traded product industry, according to research by Deutsche Bank.

European domiciled ETFs registered total inflows of EUR1.6bn while commodity ETCs registered flows of EUR496m over the month.

This is one of the strongest months of this year so far, with flows exhibiting both size and directionality. This signals the end of a period of ambivalence that had a negative impact on ETF trading volumes.

There were two major ETF investment trends over the month of June, both of which were driven by investors taking different views about the next chapter of the European debt crisis. These opposite views polarised positive cash flows patterns in the European ETF industry.

The first trend was gold ETP inflows, totalling USD1.6bn in Europe and USD770m in the US. Publication of key indicators of both the US and European economies over June point to global growth prospects becoming increasingly under pressure. As a result the market is discounting increased likelihood of further monetary easing which in turn can have a positive impact on the price of gold. This is somewhat supported by the 2.4 per cent rise in the price of gold over June.

Gold ETP flows in Europe over June eclipsed those in the US market. The US gold ETP market (USD77.7bn) is 1.8 times larger than that in Europe (USD43.4bn). The fact that European ETP investors gave a stronger push towards gold allocation in portfolios indicates the return of a trend we have observed in 2009 and 2010. Gold has often been used as a safe heaven investment by European ETP investors during periods of high equity market volatility. The divergence of the gold flow size between US and European ETP investors, as well as the lack of cash flow correlation with gold price rises throughout the month, does suggest that the June gold ETP inflows in Europe are less associated with expected monetary easing and more with concerns on whether the Euro zone can effectively address fiscal governance issues. The total June gold ETP inflows globally of USD2.4bn amount to just under 50 metric tons of gold.

The second ETP market trend relates to European diversified equity benchmarked ETFs that while very neglected over the first five months of the year (YTD outflows EUR762m). These ETFs saw healthy interest in the month of June. Developed market equity benchmarked ETFs saw inflows of EUR1.3bn, most of which went to European broad equity benchmarked ETFs (EUR847m). France (EUR162m) and the US (EUR152m) were the other two developed market equity benchmarked ETF beneficiaries at a country level. German equity market benchmarked ETFs saw inflows of EUR631m in the fourth week of June, however they finished the month almost flat (EUR50m of inflows) due to outflows in the first two weeks of June.

The largest outflows in June came out of emerging market equity benchmarked ETFs (EUR570m) and sovereign benchmarked fixed income ETFs (EUR260m). EM outflows exhibit negative pressure across the board. Most EM outflows came out of diversified indices (EUR221m), however, BRIC benchmarked ETFs (EUR171m) and other single country benchmarked EM ETFs also saw marginal outflows.

European ETF turnover, as a percentage of the region’s cash equities turnover, decreased to 6.8 per cent (from 7.5 per cent in May) as of the end of June 2012. The equivalent number for the US market stands at 26.9 per cent for the same period, marginally up by 0.2 per cent from the end of May 2012.

European ETFs comprised 2.6 per cent of the continent’s mutual fund industry as of April 2012. European domiciled ETFs registered outflows of EUR3.8bn over April 2012, while UCITS mutual funds registered inflows totalling EUR8.3bn.

US ETFs comprised 8.5 per cent of the mutual fund industry as of the end of May 2012, unchanged from the end of April 2012. US domiciled ETFs registered inflows of USD6.4bn in May 2012, while US mutual funds registered inflows of USD10.1bn over the same period.

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