Industry Updates

European ETF Flow Insights: May 2024

European Investors Preferred US dollar denominated bonds over euro bonds

Detlef Glow

European ETF Flow Insights

Preliminary numbers show the European ETF industry enjoyed healthy inflows within the generally positive market environment for the month of May 2024.

The €25.1bn total inflows were primarily driven by €17.8bn in assets gathered by equity ETFs, followed by €5.2bn entering bond ETFs, €1.4bn to money market ETFs, €800m to commodities and €51m to alternatives ETFs.

Faring worse than its equity brethren, multi-asset ETFs were the only asset type with estimated net outflows of €31m for May.

Even as the general fund flow trend in the European ETF industry looks like business as usual, the underlying flow trends at the classification level paint an interesting picture.

Within the segment of equity ETFs, global equity and US equity ETFs continued their leadership with €6.0bn and €4.1bn inflows, respectively.

Previously under-utilized exposures including UK equity and Japan equity ETFs took fourth and seventh place, with €1.2bn and €900m inflows during the month.

Eurozone equity ETFs continued to gather assets with estimated net inflows of €730m.

Since the strong inflows into ETFs classified as equity UK for May 2024 are somewhat surprising, it could be assumed these flows were triggered by the strong performance of UK equities over the course of April.

On the other side of the table, equity Germany faced outflows of €800m, which means that the inflows from April 2024 disappeared over the course of May.

The outflows from equity Switzerland might have been profit taking by a single institutional investor, as Swiss equity was the second-best performing classification for May 2024, returning 8%.

That said, the fund flow trends within the bond segment for May 2024 are much more interesting, as we witnessed only low inflows of €500m into euro denominated bond ETFs despite the clear announcement of the European Central Bank (ECB) to lower the interest rates in the Eurozone in June.

Nevertheless, those investors who bought euro bond ETFs are aiming to take profit from the decreasing interest rates as Bond EMU Government was the best-selling euro bond classification with estimated net inflows of €600m, followed by Bond EMU Government Long Term with €200m net new assets.

In addition, European investors were selling euro corporate bonds – with the Bond EUR Corporates and Bond Global Corporates EUR categories seeing €400m and €300m outflows, respectively – while buying €200m of ETFs in the Bond EUR High Yield category.

Conversely, ETFs investing in US dollar denominated bonds enjoyed overall estimated net inflows of €3.6bn despite an unclear pathway for the Federal Reserve Funds Rate through 2024.

These flows could indicate European investors want to take profit from a possibly stronger US dollar compared to the euro and the generally higher interest rates for USD bonds.

A brief view on the average performance of the Lipper global classifications shows that European investors did not chase returns in May. In fact, none of the best performing Lipper global classifications witnessed significant inflows. Rather the opposite is true, with the fourth best-performing classification – Equity Switzerland – displaying the €880m outflows, the highest for May 2024.

On performance, the alternative energy theme also staged a comeback, as the Lipper classification Equity Theme – Alternative Energy posted the second highest average returns of 8% overall for May.

These returns brought the average year-to date performance for ETFs in the category back into positive territory, up almost 0.4%. Therefore, it will be interesting to see whether this performance trend will cause inflows into the respective ETFs if it continues.

Detlef Glow is head of Lipper EMEA research at Refinitiv.

This article is for information purposes only and does not constitute any investment advice.

The views expressed are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.

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