Industry Updates

Investors pile over $1bn into European financial ETFs in one week

Strong performance by banks in Q1 and the continued rotation to value spurred vast flows into ESIF and EXX1 last week

Jamie Gordon

a city skyline at night

The European financial sector and bank ETFs were among the top inflows last week as banks posted strong Q1 results and investors continue backing the value recovery.

According to data from Ultumus, the iShares MSCI Europe Financials Sector UCITS ETF (ESIF) and iShares EURO STOXX Banks 30-15 UCITS ETF (EXX1) saw $578m and $464m inflows, respectively, the second and third highest inflows across all European-listed ETFs in the week to 30 April.

Leading this was a positive round of Q1 results for European banks with Deutsche Bank grabbing headlines as the German bank posted its best quarter in seven years.  

Having been appointed CEO in 2018, Chris Sewing’s overhaul of the company appears to have succeeded in reforming the its operations and image. Its investment bank arm, for instance, saw quarterly profits jump 134% year-on-year which offered a springboard for its share price to shoot up to a three-year-high last week. 

Also enjoying some Q1 glee were Santander, which booked record quarterly revenues from its US franchise, and BNP Paribas, which saw financing raised for clients from loans, bonds and equities spike 21%. 

Chris Beauchamp, chief market analyst UK and head of market analysis at IG, said: “Q1 results were quite decent overall, and that seems to have spurred a renewed optimism towards the sector.  

“Plus, the Archegos news is out in the wild and removes any concerns about losses.”

Aside from European banks offering an anticipated batch of positive data, ESIF and EXX1 were also buoyed by the European Central Bank’s decision to keep rates steady until at least the next significant meeting in June. 

This, along with the ECB’s asset-purchasing programme, are part of its effort to keep to recovery ball rolling. An effort, hawks warn, will drive up inflation ahead of forecasts.

Such a scenario is unfavourable for growth stocks. However, for cyclical equities – including financial services companies and banks – this approach by the ECB will only deepen the swing to value which has suited them well so far this year.

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