June 18, 2018

Monday Morning Memo: Review of the European ETF Market, May 2018

by Detlef Glow.

The promoters of ETFs in Europe enjoyed net inflows for May, which in combination with a generally positive market environment, led to increasing assets under management in the European ETF industry (€663.7 bn, up from €651.9 bn at the end of April 2018). The increase of €11.8 bn for May was driven by the performance of the underlying markets (+€10.3 bn), while net sales contributed €1.5 bn to the increase in assets under management in the European ETF segment.

With regard to the overall number of products, it was not surprising that equity funds (€475.9 bn) held the majority of the assets, followed by bond funds (€155.8 bn), commodity products (€21.0 bn), “other” funds (€6.6 bn), money market funds (€3.4 bn), mixed-asset funds (€0.7 bn), and alternative UCITS products (€0.4 bn).

Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, May 31, 2018

Review of the European ETF Market May 2018

Source: Thomson Reuters Lipper

Fund Flows by Asset Type

After strong net outflows for April, equity ETFs (+€1.7 bn) were the asset type with the highest net inflows for May of the European ETF industry, followed by commodity ETFs (+€0.3 bn), alternative UCITS ETFs (+€0.1 bn), and “other” ETFs (+€0.003 bn). Meanwhile, mixed-asset ETFs (-€0.002 bn), money market ETFs (-€0.1 bn), and bond ETFs (-€0.4 bn) posted net outflows.

This flow pattern drove the overall net flows up to €21.9 bn for the year 2018 so far.

Graph 2: Estimated Net Sales, May 2018 (Euro Millions)

Review of the European ETF Market May 2018

Source: Thomson Reuters Lipper

Assets Under Management by Lipper Global Classifications

With regard to the Lipper global classifications, the European ETF market was split into 158 different peer groups. The highest assets under management at the end of May were held by funds classified as Equity US (€111.0 bn), followed by Equity Global (€59.5 bn), Equity Eurozone (€54.4 bn), and Equity Europe (€37.8 bn) as well as Equity Emerging Markets Global (€35.4 bn). These five peer groups accounted for 44.92% of the overall assets under management in the European ETF segment, while the ten top classifications by assets under management accounted for 59.99%. Overall, 18 of the 158 peer groups each accounted for more than 1% of the assets under management. In total, these 18 peer groups accounted for €473.4 bn or 71.33% of the overall assets under management. In addition, it is noteworthy that the ranking of the largest peer groups was quite stable, indicating that European investors use the funds from these peer groups as core holdings and not just as so-called satellites that are bought and sold quite frequently to implement asset allocation views in the investors’ portfolios. These numbers show that the assets under management in the European ETF industry continued to be highly concentrated.

Graph 3: Ten Top Lipper Global Classifications by Assets Under Management, May 31, 2018 (Euro Millions)

Review of the European ETF Market May 2018

Source: Thomson Reuters Lipper

The peer groups on the other side of the table showed that some funds in the European ETF market are quite low in assets and may risk being closed in the near future. They are obviously lacking investor interest and might therefore not be profitable for the respective fund promoters (Please read our report: “Is there a consolidation ahead in the European ETF industry?” for more details on this topic.)

Graph 4: Ten Smallest Lipper Global Classifications by Assets Under Management, May 31, 2018 (Euro Millions)

Review of the European ETF Market May 2018

Source: Thomson Reuters Lipper

Fund Flows by Lipper Global Classifications

With regard to the overall sales for May, it was not surprising that the ten best selling peer groups were dominated by equity funds, since equity ETFs were investors’ darlings for the month. The best selling Lipper global classification for May was Equity Global (+€5.1 bn), followed by Equity US (+€0.9 bn) and Bond USD Inflation-Linked (+€0.3 bn).

The inflows of the ten best selling Lipper classifications equalled to 531.65% of the overall net inflows. These numbers showed that the European ETF segment is also highly concentrated with regard to fund flows by sectors. Generally speaking, one would expect the flows into ETFs to be concentrated, since investors often use ETFs to implement their market views and short-term asset allocation decisions; these products are made for and therefore are easy to use for these purposes.

Graph 5: Ten Best and Worst Selling Lipper Global Classifications by Estimated Net Sales, May 2018 (Euro Millions)

Review of the European ETF Market May 2018

Source: Thomson Reuters Lipper

On the other side of the table the ten peer groups with the highest net outflows for May accounted for €5.5 bn of outflows. Equity Eurozone (-€1.5 bn) faced the highest net outflows, bettered by Equity Sector Financials (-€1.1 bn) and Equity Germany (-€0.8 bn).

Assets Under Management by Promoters

A closer look at the assets under management in the European ETF industry by promoters also showed high concentration, since only 19 of the 50 ETF promoters in Europe held assets at or above €1.0 bn each. The largest ETF promoter in Europe—iShares (€299.7 bn)—accounted for 45.15% of the overall assets under management, far ahead of the number-two promoter—Xtrackers (€72.2 bn)—and the number-three promoter—Lyxor ETF (€64.8 bn). (To learn more about the concentration of the European ETF market at the promoter level, please read our report: Facts about the concentration in the European ETF industry.)

Graph 6: Ten Top ETF Promoters by Assets Under Management, May 31, 2018 (Euro Millions)

Review of the European ETF Market May 2018

Source: Thomson Reuters Lipper

The ten top promoters accounted for 93.03% of the overall assets under management in the European ETF industry. This meant in turn that the other 40 fund promoters registering at least one ETF for sale in Europe accounted for only 6.97% of the overall assets under management.

Fund Flows by Promoters

Since the European ETF market is highly concentrated, it was surprising that only three of the ten largest promoters by assets under management were among the ten top-selling ETF promoters for May and that Europe’s largest ETF promoter—iShares—wasn’t on the list of the ten best selling promoters for the month. UBS ETF was the best selling ETF promoter in Europe for May (+€3.4 bn), well ahead of Xtrackers (+€0.7 bn) and Invesco (+€0.2 bn).

Graph 7: Ten Best Selling ETF Promoters, May 2018 (Euro Millions)

Review of the European ETF Market May 2018

Source: Thomson Reuters Lipper

Since the flows of the ten top promoters accounted for 319.06% of the overall estimated net flows into ETFs in Europe for May, it was clear that some of the 50 promoters (19) faced net outflows (-€3.2 bn in total) over the course of May.

Assets Under Management by Funds

There were 2,481 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of May. With regard to the overall market pattern, it was not surprising that the assets under management at the ETF level were also highly concentrated. Only 158 of the 2,481 instruments held assets above €1.0 bn each. These products accounted for €407.7 bn or 61.43% of the overall assets in the European ETF industry. The ten largest ETFs in Europe accounted for €106.8 bn or 16.09% of the overall assets under management. (Please read our study: Is the European ETF industry dominated by only a few funds? to learn more about the concentration at the single-fund level in the European ETF industry.)

Graph 8: Ten Largest ETFs by Assets Under Management, May 31, 2018 (Euro Millions)

 Review of the European ETF Market May 2018

Source: Thomson Reuters Lipper

ETF Flows by Funds

A total of 752 of the 2,481 instruments analyzed in this report showed net inflows of more than €10,000 each for May, accounting for €16.2 bn or 1,117.82% of the overall net flows. This meant in turn that the other 1,729 instruments faced no flows or net outflows for the month. In more detail only 28 of the 752 ETFs posting net inflows enjoyed inflows of more than €100 m each during May, summing to €8.2 bn. The best selling ETF for May, UBS ETFs plc – MSCI ACWI SF UCITS ETF (h USD) Aa, accounted for net inflows of €1.1 bn or 72.26% of the overall net inflows. It was followed by two more share classes of the same fund; UBS ETFs plc – MSCI ACWI SF UCITS ETF (h EUR) Aa (+€1.0 bn) and UBS ETFs plc – MSCI ACWI SF UCITS ETF (h CHF) Aa (+€0.9 bn).

Graph 9: Ten Best Selling ETFs, May 2018 (Euro Millions)

Review of the European ETF Market May 2018

Source: Thomson Reuters Lipper

The flow pattern at the fund level indicated that there was a lot of turnover and rotation during May, but it also showed the concentration of the European ETF industry even better than the statistics at the promoter or classification level. It was surprising that only three of the ten best selling funds for May were promoted by iShares; these accounted for total net inflows of €1.5 bn or 102.29% of the net inflows into the European ETF segment.

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