European ETFs Gather Record Assets

Terry Flanagan

Net new assets in European exchange-traded funds and products in the first 10 months if this year have overtaken flows for all previous full-years in the region as passive investing is expected to keep growing.

ETFs/ETPs listed in Europe gathered a record $56.2bn in the year-to-date to the end of October, which surpasses any full year for net new assets in the region according to preliminary data from consultancy ETFGI’s end October 2014 Global ETF and ETP industry insights report.

Last month European-listed ETFs/ETPs gathered $8.7bn in net new assets despite challenging macroeconomic concerns such as deflation and slow growth in Europe.

Deborah Fuhr, managing partner at ETFGI, said in a statement:
“At the end of the month the markets reacted positively to the Bank of Japan’s announcement of new annual purchasing targets of ¥80 trillion in bonds and ¥3 trillion in ETFs. The S&P 500 reached a new record, 2,017, which is up 1.2% for the month and 9.2% for the year.”

So far this year iShares, BlackRock’s ETF business, gathered the largest net inflows in Europe with $18.4bn, followed by Vanguard, the US manager, with $8.4bn. Societe Generale’s Lyxor AM was third with $6.2bn in net inflows.

The largest net inflows into European ETFs last month were into equities with $5.2bn and then fixed income with $3.6bn. In contrast, commodities had net outflows of $183m.

Hartmut Graf, chief executive of Stoxx, the European index provider, said in a media briefing last week that passive investing is expected to grow significantly faster than active in the upcoming years.

Graf said there was increased interest in smart beta products, which offer higher returns than products based on standard indices, and fixed income ETFs.

“Fixed income indices face a dilemma as the companies with the largest amount of debt have biggest weighting in indices. These are established concepts with a lot of followers but we see potential to go beyond that by bringing in our innovation and experience,” he added.

Graf expects the use of indexing to increase in Asia as the region undergoes a trading shift to long-term investment styles and passive strategies gain ground. “The Dax ETF in China was one of the most successful launches,” he said.

Ashmore Investment Management, the emerging markets specialist, said in a note that the launch of the the Shanghai-Hong Kong Stock Connect Program, which allows investors with access in one market to buy and sell eligible shares listed on the other, will increase demand for Chinese equities.

The note said: “In light of China’s gradual market opening through these various programs, major index providers have been rethinking the limited weight given to China equities within global indices and are likely to include more China stocks through a series of steps beginning in 2016.”

Charlie Awdry, manager of the Henderson China Opportunities Fund, said in an interview with Morningstar, the fund management research provider, that Stock Connect will make it easier for foreign investors to access stocks listed in Shanghai.

Awdry told Morningstar: “We are all accelerating our research into mainland companies and I think over the next few months you will see some more stocks in the fund because there are some actually quite interesting unique investment opportunities there.”

Featured image via Gajus/Dollar Photo Club

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