A disappointing recent trading statement from global exchange traded products (ETP) liquidity provider Flow Traders suggests the market has seen a downturn in trade over the summer even as US ETF inflows hit a new high in September.
ETFGI said on Monday that US ETF and ETP assets hit a new high of $3.73trn following new inflows of $36.2bn. However, in Europe while ETF/ETP inflows stood at $6.5bn, total assets under management fell back 0.38% to $832bn.
Last week, a third-quarter trading statement from the Amsterdam-listed Flow Traders showed a 10% quarter-on-quarter drop in the value of ETFs traded. Flow Traders' proprietary platform provides bid and ask pricing for thousands of ETF listings with Flow Traders taking a very small slice of the spread for its profit. The market is highly competitive, particularly given the squeeze on margins caused by the ETF price war.
Flow Traders said that trading volumes in the overall ETF market fell by 12% to €4.87trn with Europe (here the company holds the largest market share) leading the way, off by 17% compared with the second quarter. The value traded for the Americas region was down by 11% and Asia was down by 4%.
Flow Traders managed marginally better than the overall market with its total value traded won by 10%. It said it had gained market share in all regions and added new institutional clients to its roster both in the US and Europe.
"Markets were seasonally slow in the third quarter, as certain geopolitical events only had a short impact on the market," said Flow Traders co-chief executive Dennis Dijkstra. "The temporary fall in realised volatility in especially the US, affected profit potential in the third quarter."
Oliver Smith, portfolio manager at IG Smart Portfolios, agreed that Flow Traders appeared to be suffering from relatively moribund markets. "This is just a reflection of a very boring quarter for the markets generally," he said.
"Flow Traders has managed to onboard some new clients, but overall their clients have been trading less. They are operationally geared to more volatility, whether that be inflows or outflows into ETFs."
Adam Laird, head of ETF strategy at Lyxor ETF, agreed on the issue of summer trading but added that Lyxor's own data showed that investment levels were lower this year compared with 2017.
"ETFs have been taking assets, but the rate has slowed compared with last year's record figures," he said. "I think this is a reflection of slowing markets and investors feeling a little more nervous. But it's far too easy to say this is a sign of greater problems."
According to ETFGI a high proportion of the net inflows in Europe can be attributed to the top 20 funds in Europe. This includes nine funds from BlackRock iShares and five from Amundi.
BlackRock's recent third-quarter results suggested that ETF inflows were the one bright spot among an otherwise poor quarter with regard to investor enthusiasm. The results showed that globally there were $34bn of inflows into the BlackRock iShares products in the three months to September.
The ETFGI figures showed that equity ETFs in Europe stood at $6.28bn while fixed income inflows in Europe stood at $2.1bn. However, commodity ETPs saw net outflows of $1.1bn. All three main asset classes were substantially behind their year-to-date inflow figures from last year.
Equity inflows in the nine months to September stood at $34.2bn compared to $52bn from the same point last year.