October 15, 2018

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

by Detlef Glow.

The promoters of ETFs in Europe enjoyed net inflows for September. These inflows, in combination with positive performance of the underlying markets, led to increased assets under management in the European ETF industry. In more detail, the assets under management in the European ETF industry increased from €660.5 bn (as of August 31, 2018) to €683.9 bn at the end of September 2018. The increase of €23.4 bn for September was driven by the performance of the underlying markets (+€17.8 bn), while net sales contributed €5.6 bn to the growth in assets under management in the European ETF segment.

With regard to the overall number of products, it was not surprising that equity funds (€494.3 bn) held the majority of the assets, followed by bond funds (€160.5 bn), commodity products (€18.5 bn), “other” funds (€5.7 bn), money market funds (€3.5 bn), mixed-asset funds (€1.0 bn), and alternative UCITS products (€0.4 bn).

Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, September 30, 2018

Market Review European ETF Report September 2018

Source: Lipper

Fund Flows by Asset Type

After three months with below-average inflows the fund flows in the European ETF industry (+€5.6 bn) were above the rolling 12-month average (+€4.7 bn); general investor sentiment might have returned to normal in September. Equity ETFs were once again the asset type with the highest net inflows (+€4.9 bn), followed by bond ETFs (+€1.9 bn), alternative UCITS ETFs (+€0.04 bn), and mixed-asset ETFs (+€0.01 bn). Opposite to this, commodity ETFs (-€0.8 bn faced the highest outflows, bettered by “other” ETFs (-€0.3 bn) and money market ETFs (-€0.2 bn).

This flow pattern drove the overall net flows to €35.5 bn for the year 2018 so far.

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

Market Review European ETF Report September 2018

Source: 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 September were held by funds classified as Equity US (€128.7 bn), followed by Equity Global (€65.4 bn), Equity Eurozone (€52.5 bn), and Equity Europe (€39.0 bn) as well as Equity Emerging Markets Global (€32.2 bn). These five peer groups accounted for 46.46% of the overall assets under management in the European ETF segment, while the ten top classifications by assets under management accounted for 60.74%. 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 €489.0 bn or 71.5% of the overall assets under management. In addition, it was 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 showed 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, September 30, 2018 (Euro Millions)

Market Review European ETF Report September 2018

Source: 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 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, September 30, 2018 (Euro Millions)

Market Review European ETF Report September 2018

Source: Lipper

Fund Flows by Lipper Global Classifications

With regard to the overall sales for September, it was not surprising that equity funds (+€4.5 bn) dominated the table of the ten best selling peer groups, even though the peer group count was equally split between bond and equity funds. The best selling Lipper global classification for September was once again Equity US (+€1.8 bn), followed by Equity Global (+€1.4 bn) and Equity Europe (+€0.5 bn).

The inflows of the ten best selling Lipper classifications equalled to 112.27% 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, September 2018 (Euro Millions)

 Market Review European ETF Report September 2018

Source: Lipper

On the other side of the table the ten peer groups with the highest net outflows for September accounted for €2.7 bn of outflows. Commodity Blended (-€0.5 bn) faced once again the highest net outflows, bettered by “Unclassified” (-€0.3 bn) and Equity Eurozone (-€0.3 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 12 of the 48 ETF promoters in Europe held assets at or above €1.0 bn each. The largest ETF promoter in Europe—iShares (€309.1 bn)—accounted for 45.19% of the overall assets under management, far ahead of the number-two promoter—Xtrackers (€73.6 bn)—and the number-three promoter—Lyxor ETF (€65.8 bn). (To learn more about the concentration of the European ETF market at the promoter level, please read our report: Spotlight on the concentration at the promoter level in the European ETF industry)

Graph 6: Ten Top ETF Promoters by Assets Under Management, September 30, 2018 (Euro Millions)

Market Review European ETF Report September 2018

Source: Lipper

The ten top promoters accounted for 93.07% of the overall assets under management in the European ETF industry. This meant in turn that the other 38 fund promoters registering at least one ETF for sale in Europe accounted for only 6.93% of the overall assets under management.

Fund Flows by Promoters

Since the European ETF market is highly concentrated, it was not surprising that seven of the ten largest promoters by assets under management were among the ten top-selling ETF promoters for September. iShares was the best selling ETF promoter in Europe for September (+€2.2 bn), well ahead of Amundi ETF (+€1.5 bn) and Xtrackers (+€0.7 bn).

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

Market Review European ETF Report September 2018

Source:  Lipper

Since the flows of the ten top promoters accounted for 111.95% of the overall estimated net flows into ETFs in Europe for September, it was clear that some of the 48 promoters (10) faced net outflows (-€0.9 bn in total) over the course of September.

Assets Under Management by Funds

There were 2,625 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of September. 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 155 of the 2,625 instruments held assets above €1.0 bn each. These products accounted for €414.5 bn or 60.61% of the overall assets in the European ETF industry. The ten largest ETFs in Europe accounted for €114.4 bn or 16.73% 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, September 30, 2018 (Euro Millions)

Market Review European ETF Report September 2018

Source: Lipper

ETF Flows by Funds

A total of 756 of the 2,625 instruments analyzed in this report showed net inflows of more than €10,000 each for September, accounting for €15.8 bn or 281.26% of the overall net flows. This meant in turn that the other 1,869 instruments faced no flows or net outflows for the month. In more detail only 39 of the 756 ETFs posting net inflows enjoyed inflows of more than €100 m each during September, summing to €7.4 bn. The best selling ETF for September, iShares Edge MSCI Eur Momentum Factor UCITS ETF EUR Acc, accounted for net inflows of €0.4 bn or 7.56% of the overall net inflows. It was followed by Fidelity US Quality Income UCITS ETF USD Acc (+€0.4 bn) and iShares Core S&P 500 UCITS ETF USD (Acc) (+€0.4 bn).

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

Market Review European ETF Report September 2018 

Source: Lipper

The flow pattern at the fund level indicated that there was a lot of turnover and rotation during September, but it also showed the concentration of the European ETF industry even better than the statistics at the promoter or classification level. Given its size, it was not surprising that six of the ten best selling funds for September were promoted by iShares; these accounted for total net inflows of €2.4 bn or 43.03% of the net inflows into the European ETF segment.

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