In the second quarter, European investors in equity ETFs (exchange traded funds) turned away from Wall Street in favor of emerging markets and the Eurozone. The interest they had shown in the American Stock Exchange in the first three months of the year gave way to redemptions in both the large and small cap segments. “It's no surprise that this coincided with the weakening of the dollar against major international currencies,” explains Jose-Garcia Zarate, who is associate director of passive strategies at Morningstar. “It appears that traders are now pricing in the downside risks of the so-called Trump trade, i.e. the post-election rally.”
Eurozone surprise
In total, equity ETFs raised 13,3 billion euros net in the second quarter (19,4 in the previous period). Of these, 3,1 went to instruments indexed to emerging stock exchanges and the same number to those with a focus on the euro area. While the former are part of a positive trend that has been going on for months, the latter came as a surprise. "It is probable that the reduction of political risks, after the votes in France and Holland, has increased investor confidence in the area", writes Zarate in its European ETF asset flow report. "In fact, the category of specialized funds on the Parisian list is among the top five for net flows in the three months".
Still hunting for yield
If Wall Street has been unpopular, the same cannot be said of US-denominated bonds. ETFs investing in investment grade corporate issues and US dollar government bonds together received net subscriptions of 2 billion euros, far more than what came out of the stars and stripes equities. “It could be a sign of an increase in risk aversion,” says Zarate. "But it's too early to tell if it will last."
In any case, in fixed income, the dominant theme continues to be the search for yield, as evidenced by the interest in emerging bond ETFs, both in hard and local currency, which ended the quarter with a total positive balance of 2,7. 7,4 billion. The entire bond segment raised 7,2 billion (they had been XNUMX in the previous three months).
Interest in commodities has cooled among investors. Morningstar estimates net flows of 1,6 billion between April and June, against 4,9 in the first months of the year. Once again, specialized gold tools took the lion's share.
Strategic beta, less flows in the quarter
Inflows from Strategic betas, commonly known as smart betas, also decreased, going from 3,2 to 2,3 billion in the period considered. Strategic ETFs represent 8% of the European passive fund market in terms of assets. As already happened in the first quarter, yield-oriented approaches were the most popular (+1,9 billion net). However, the offer has increased. "Of the 51 new ETFs that arrived on the market between April and June, more than half are of this type", concludes Zarate.
Industry numbers
Overall, the European ETF industry raised 24 billion net in the second quarter, down from 33,4 in the previous period. Assets exceeded 613 billion against 600,5 at the end of March.
SOURCE: Morningstar
