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Fixed income ETFs poised to mark 2019 as best ever year


Fixed income ETFs are still topping the quarterly flows league with EUR13.6 billion inflows in the third quarter of 2019 according to the latest Morningstar Direct European ETF Asset Flows report.

‘Barring a strong reversal of fortunes in the fourth quarter, 2019 is likely to be the first year ever when flows into bond ETFs surpass their equity counterparts,’ states the report.

Shunning European debt—particularly short-term exposures—investors favoured USD government bond and EUR corporate bond Morningstar categories. Top funds in Q3 were the iShares USD Treasury Bond 0-1 year ETF and the iShares USD High Yield Corporate Bond ETF which saw inflows of EUR1.624 billion and EUR1.150 billion respectively. Other higher-yielding ETFs in the global emerging markets Morningstar categories also benefited from inflows.
Bond ETFs offering upside rate protection like the iShares USD Floating Rate Bond and the Amundi IS Floating Rate USD Corporate ETFs suffered notable outflows over the third quarter.
Meanwhile, equity ETFs saw solid net inflows of EUR8.1 billion. This more than offset the outflows experienced in the second quarter.
Broad developed equities, US large-cap equity, and global large-cap Morningstar categories were the main beneficiaries, whereas global emerging markets took the brunt of the outflows.
Signs of a thaw in Brexit negotiations benefited both UK and eurozone equity ETFs in Q3. In particular, the iShares Core FTSE 100 ETF, MSCI EMU ESG Screened ETF, and EURO STOXX 50 ETFs were on the receiving end of healthy asset flows.
However, ESG ETFs registered their strongest performance to date, raking in an impressive EUR4.3 billion in net new flows, up from EUR2.6 billion the previous quarter. This represented 17 per cent of total ETF flows over Q3 and lends further weight to the view that ESG investing is gaining momentum, says the report – also noting that they still represent just 2.5 per cent of the total ETF market, thus indicating plenty of room to grow.
UBS, one of the largest providers of sustainable ETFs in Europe – a close second behind iShares in the league table of European sustainable ETF providers – expanded its offering with the launch of the UBS MSCI China ESG Universal ETF, the first sustainable ETF tracking Chinese equities in Europe.
Morningstar has also partnered with STOXX to launch the EURO STOXX 50 ESG ETF, which, taken with the launch of an ESG S&P 500 ETF in the previous quarter, signals an attempt to provide ESG alternatives for the most recognisable benchmarks.
In total, European ETF assets grew by 9 per cent over Q3 2019 to EUR839 billion – EUR24.8 billion of net inflows up from EUR9.2 billion in the previous three months.
AUM swelled to EUR839 billion, up from EUR770 billion in the second quarter, states the report, adding that ‘the market remains on target to reach the EUR1 trillion milestone by 2020, as we predicted two years ago.’

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