Athanasios Psarofagis and Henry Jim, Bloomberg Intelligence ETF Analysts, have written a note on European ETFs, revealing that European ETP inflows in 2022 have remained resilient despite what they describe as one of the harshest market environments ever.
The pair writes that although flows will fall short of last year’s, ETPs have shown they can continue to take in cash and grab market share from actively managed mutual funds, even as poor performance lowers total assets.
Europe-listed ETPs have taken in EUR62 billion year-to-date, showing strength in one of the toughest market environments ever, BI writes. “This year will barely make the industry’s top five for flows, yet it may be among the most important, given that ETPs continue to take in cash even though most are down for the year. Market declines have contributed to the loss of more than EUR165 billion in assets.”
In the European market, iShares has strong share across many measurable attributes, they say, with over 40 per cent of ETP assets, industry revenue and trading, and 57 per cent of this year’s inflows. Vanguard leads in the US but has only 6 per cent of European ETP assets, according to Bloomberg. However, investors’ greater focus on costs has vaulted it to No. 2 in flows in the region, with 16 per cent. UBS and Xtrackers are among the largest issuers with outflows this year, the authors say.
European ETP trading has already topped 2021’s record with over a month left in the year, the analysts say. “We calculate trading has exceeded EUR2.1 trillion this year, showing that investors may be using the wrapper more tactically and as a liquidity vehicle to take advantage of market opportunities. Trading surpassed EUR200 billion a month amid volatility in January-March.”
One driver of this year’s resilient flows may be a broadening shift to ETPs from mutual funds, according to Bloomberg. “Market declines are opening up opportunities for investors to rotate out of mutual funds and into ETPs, which carry lower expense ratios. Europe’s ETPs have outpaced mutual funds in flows every month this year, and tougher market conditions appear likely to accelerate passive and ETP adoption across the region.”
The analysts report that cost has been pushed to the forefront of investor criteria. In the past six months, ETPs priced at 20 bps or less have taken in EUR22 billion. Collectively, the more expensive buckets shed EUR28 billion.