ETF flows and returns increase dramatically in Europe, US: Cerulli

Exchange traded funds have posted stellar figures in both US and Europe with assets in US funds reaching US$65.1bn in just six months.

In its latest issue of The Cerulli Edge – U.S. Monthly Product Trends, published from its Boston headquarters, investment research specialists Cerulli Associates highlights what it calls the growing importance of consultant relations, the implementation of managed volatility, and a particularly fruitful first half of the year for ETFs.

And in Europe its is ETFs aimed at generating income have become one of the fastest-growing sectors as investors in search of yield increasingly shun costly active products, according to the latest issue of The Cerulli Edge-European Monthly Product Trends Edition. Cerulli said that investors are increasingly using ETFs for tactical as well as strategic allocation, pointing to the lead role ETFs played in the recent resurgence of flows into emerging market funds in Europe. Cerulli believes that the trend towards negative government bond yields may further encourage the use of ETFs as investors look for vehicles that allow easy access and easy exit in the face of volatility caused by factors such as Brexit.

Equity and bond ETFs rise

“While the majority of assets under management (AUM) in European-based ETFs are admittedly equities, fixed-income ETFs are growing faster,” said Barbara Wall, Europe managing director at Cerulli.

“AUM for bond ETFs sold in Europe grew to €124.8bn (US$137bn) as of the end of May, more than tripling since the end of 2011. In the same time period, equities have doubled to about €305bn. In 2016, bond ETFs have seen inflows, while equity products have suffered outflows.”

Cerulli says that low-volatility ETF products are also attracting more interest from cautious investors, partly because such strategies have tended to outperform, thanks to phenomena such as the low-volatility anomaly. By combining low volatility with high dividends, providers such as Invesco PowerShares have added an extra dimension.

“Europe still has some way to go before its ETF market catches up with that of the United States. Nevertheless, income-oriented products may well offer the best growth opportunities for providers,” said Wall.

US ETF rise

In the US, mutual fund assets ended the first six months of the year with $12.1 trillion in assets, up 2.4% from the end of 2015.

Cerulli said this is largely attributed to capital market performance, as flows were a “relatively minimal” US$5.9bn. The first half of the year was a fruitful one for ETFs, as assets grew 5.8% to more than $2.2 trillion during the six-month period ended June 2016. Flows for the first half of 2016 came in at an impressive US$65.1bn.

In its latest report product providers have told Cerulli that the “holy grail” of managed volatility is the ability to model global assets for targeted volatility strategies so that the institutional investor doesn’t have to continuously buy and sell physical assets. “This is an especially attractive proposition in today’s markets when liquidity concerns constantly loom on the minds of most investors,” the report said.

Gary Robinson
Head of Video and Ezines at Open Door Media Publishing. Deputy Editor, International Investment. An experienced journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as a fully qualified IFA, Gary works across both International Investment and InvestmentEurope titles. Previous video production credits include projects on BBC, C4 and SKY.

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