Bond ETFs enjoy strong inflows in July
The promoters of exchange-traded funds (ETFs) enjoyed healthy net inflows for July in a prospering market environment. Increasing markets lifted the assets under management in the European ETF industry from €452.8 bn for June to a new all-time high of €473.6 bn at the end of July. The increase of €20.8 bn for July was mainly driven by the performance of the underlying markets (+€12.8 bn), while net sales contributed €8.0 bn to the overall growth in assets under management in the ETF segment. With regard to the overall number of products, it was not surprising that equity funds (€315.0 bn) held the majority of the assets, followed by bond funds (€130.9 bn), commodity products (€16.9 bn), “other” funds (€6.3 bn), money market funds (€3.5 bn), alternative UCITS products (€0.6 bn), and mixed-asset funds (€0.4 bn).
Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, July 31, 2016
Source: Thomson Reuters Lipper
Fund Flows by Asset Type
After positive flows for June, equity ETFs (-€0.1 bn) posted the highest net outflows for July, bettered somewhat by mixed-asset ETFs (-€0.7 bn), money market funds (-€0.2 bn), and alternative UCITS products (-€0.2 bn). On the other side of the table bond ETFs (+€5.0 bn) enjoyed the highest net inflows, followed by commodity products (+€2.2 bn) and “other” funds (+€1.0 bn).
The flows for July drove the overall net inflows into the European ETF segment to €21.2 bn for the year so far.
Graph 2: Estimated Net Sales, July 2016 (Euro Millions)
Source: Thomson Reuters Lipper
Assets Under Management by Lipper Global Classifications
With regard to Lipper global classifications, the European ETF market was split into 163 different peer groups. The highest assets under management at the end of July were held by funds classified as Equity US (€70.7 bn), followed by Equity EuroZone (€38.5 bn), Equity Global (€30.7 bn), and Bond EUR Corporates (€26.6 bn) as well as Equity Europe (€26.3 bn). These five peer groups accounted for 40.71% of the overall assets under management in the European ETF segment, while the ten top classifications by assets under management accounted for 59.28%. Overall, 19 of the 164 peer groups each accounted for more than 1% of the assets under management. In total, these 19 peer groups accounted for €335.9 bn or 70.92% of the overall assets under management. These numbers showed that the assets under management in the European ETF industry continue to be highly concentrated.
Graph 3: Ten Top Lipper Global Classifications by Assets Under Management, July 31, 2016 (Euro Millions)
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 face the risk of being closed in the near future. They are obviously lacking investor interest and might therefore not be profitable for the respective fund promoters.
Graph 4: Ten Smallest Lipper Global Classifications by Assets Under Management, July 31, 2016 (Euro Millions)
Source: Thomson Reuters Lipper
Fund Flows by Lipper Global Classifications
With regard to the overall sales for July, it was somewhat surprising that there were three equity peer groups among the best selling Lipper classifications. In addition, it was surprising to see that only two of the best selling classifications accounted for estimated net sales of more than €1.0 bn. The best selling Lipper global classification for July was once again Equity US (+€1.5 bn), followed by Equity Emerging Markets Global (+€1.3 bn) and Equity Global (+€1.0 bn). These inflows equalled to 46.96% of the overall 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 in the European ETF segment 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 Top Lipper Global Classifications by Estimated Net Sales, July 2016 (Euro Millions)
Source: Thomson Reuters Lipper
On the other side of the table the ten peer groups with the highest net outflows for July accounted for €3.3 bn of outflows. Equity Eurozone (-€1.0 bn) faced the highest net outflows, bettered somewhat by Equity Europe (-€0.7 bn) and Bond EMU Government (-€0.4 bn).
Graph 6: Ten Worst Selling Lipper Global Classifications by Estimated Net Sales, July 2016 (Euro Millions)
Source: Thomson Reuters Lipper
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 (€231.6 bn)—accounted for 48.90% of the overall assets under management, far ahead of the number-two promoter—db x-trackers (€54.4 bn)—and the number-three promoter—Lyxor ETF (€46.6 bn).
Graph 7: Ten Top ETF Promoters by Assets Under Management, July 31, 2016 (Euro Millions)
Source: Thomson Reuters Lipper
The ten top promoters accounted for 92.46% 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 7.54% of the overall assets under management.
Fund Flows by Promoters
Since the European ETF market is highly concentrated, it is somewhat surprising that only five of the ten largest promoters by assets under management were also among the ten top-selling ETF promoters for July. iShares, with net sales of €7.2 bn, maintained its position as the best selling ETF promoter in Europe, followed by State Street SPDR (+€1.0 bn) and Vanguard (+€0.5 bn).
Graph 8: Ten Best Selling ETF Promoters, July 2016 (Euro Millions)
Source: Thomson Reuters Lipper
Since the flows of the ten top promoters accounted for 118.6% of the overall estimated net flows into ETFs in Europe for July, it was clear that some of the 50 promoters (14) faced net outflows (-€0.7 bn in total) over the course of July.
Assets Under Management by Funds
There were 2,063 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of July. 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 108 of the 2,063 instruments held assets above €1.0 bn each. These products accounted for €274.0 bn or 57.84% of the overall assets in the European ETF industry. The ten largest ETFs in Europe accounted for €80.1 bn or 17.05% of the overall assets under management.
Graph 9: Ten Largest ETFs by Assets Under Management, July 31, 2016 (Euro Millions)
Source: Thomson Reuters Lipper
ETF Flows by Funds
A total of 673 of the 2,063 instruments analyzed in this report showed net inflows of more than €10,000 each for July, accounting for €18.7 bn or 235.3% of the overall net flows. This meant in turn that the other 1,390 instruments faced no flows or net outflows for the month. In more detail 40 of the 673 ETFs posting net inflows enjoyed inflows of more than €100 m each during July, summing to €11.1 bn. The best selling ETF for July, iShares Diversified Commodity Swap, accounted for net inflows of €0.7 bn or 8.82% of the overall net inflows; it was followed by iShares Emerging Markets Local Government Bond UCITS ETF (+€0.6 bn) and iShares JPM $ EM Bond EUR Hedged UCITS ETF (+€0.5 bn).
Graph 10: Ten Best Selling ETFs, July 2016 (Euro Millions)
Source: Thomson Reuters Lipper
The flow pattern at the fund level showed the concentration even better than the statistics at the promoter or classification level. Overall, seven of the ten best selling funds for July were promoted by iShares and accounted for total net inflows of €3.5 bn.
Detlef Glow is head of EMEA Research at Thomson Reuters Lipper
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