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ETFs continue to see steady inflows in October

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After the records set in September, European ETFs continued to enjoy steady inflows in October and gathered EUR10.7 billion, according to Lyxor’s latest ETF Money Monitor.

Those inflows were predominantly driven by equity (+EUR5.3 billion) and fixed income (+EUR2.7 billion). For once, the lion’s share of equity flows for individual countries (+EUR2.6 billion) came from somewhere other than the US. All eyes were, perhaps surprisingly, on the UK where equities gathered +EUR2.3 billion after developments in the Brexit saga prompted investors to progressively downplay the prospects of a no-deal outcome. After three years of wasteful “wait and see”, investors finally seem to have identified what they believe is a reasonable entry point.
 
Elsewhere, flows into commodities continued (EUR+229 m) and smart beta ETF inflows remained relatively steady at EUR+492m. Meanwhile, ESG ETFs keep breaking all records. Monthly inflows of EUR1.9 billion took their total for the year to EUR11.7 billion – well in advance of anything they’ve ever achieved before.

The most likely catalysts are the developments in the Brexit saga. Despite it being one of the most eventful months in post-war UK politics, investors have responded constructively to the heavy newsflow. Three key elements  – the House of Commons’ vote in favour of Boris Johnson’s Brexit bill, the disagreement over the brevity of the period they were given to discuss and scrutinise it and the government’s eventual request to extend the deadline (now January 2020) – prompted investors to progressively downplay the prospects of a no-deal outcome.

A general election is now planned for 12 December. Its consequences could be far-reaching and go well beyond the short-term implications of Brexit. Uncertainty still prevails in currency and equity markets. But after three years of wasteful “wait and see”, investors seem to have identified a reasonable entry-point.

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