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ETF trading patterns point to improving European equity market conditions

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Exchange-traded fund trading patterns continue to point to an improved climate in the European equity market for the week ended on 21 September 2012, says Deutsche Bank.

The European ETF market registered total inflows of EUR924m, the vast majority of which was received by equity benchmarked ETFs (EUR952m).

ETCs also had a good week, with commodity benchmarked ETCs receiving EUR300m. Together, ETPs received a total of EUR1.2bn of inflows, making this week the sixth (out of 38) best for this year.

This week’s strong ETF cash flows come on the back of continuously rising equity prices, both in the US and Europe, since 2012 lows in early June. Indeed, cash flow patterns for developed market (DM) equity benchmarked ETFs have reflected price movements closely. DM equity benchmarked ETF cash flows have also seen a rise, with an emphasis in the past two weeks.

DM equity benchmarks are important for the ETF industry and for Europe specifically. Equity ETFs make up 67 per cent of the European ETF industry and DM benchmarked equity ETFs make up 68 per cent of Europe’s equity ETF segment.

Year to date, European domiciled DM equity benchmarked ETFs have received total inflows of EUR1.8bn, close to 30 per cent of these (EUR508m) have materialized in the most recent week ended on 21 September.

The top benchmark index benefactor of broad DM equity ETF flows is the MSCI World index, gathering EUR1.2bn YTD, closely followed by MSCI Europe that gathered EUR1.1bn. The US S&P 500 comes in third place with YTD inflows of EUR804m, while Europe’s Stoxx 600 experienced inflows of EUR564m. All four indices saw positive ETF flows over the past week.

Germany’s DAX remains by far Europe’s largest DM ETF equity benchmark, despite ETF outflows topping EUR1.2bn YTD. Switzerland’s SMI, France’s CAC 40 and the MSCI USA follow with ETF outflows of EUR417m, EUR337m and EUR324m respectively. DAX and MSCI USA also experienced outflows in the most recent week that finished on 21 September.

The ratio of (top 10 DM ETF benchmark) winners to losers indicates an improvement in market sentiment, moving up to 2.9x for the week, from 1.6x YTD. The ratio indicates that inflows for the top 10 inflow benchmarks outstrip outflows for the respective top ten outflow benchmarks.

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