European ETF AUMs jumped 10% to € 1.2 billion in Q1 2021
The European ETF market posted record quarterly inflows in the first three months of the year, amid strong demand for equities, ESGs and a return to value.
According to Morningstar data, ETFs in Europe have seen 48.2 billion euros in inflows in the first quarter, bringing the ecosystem’s assets under management (AUM) to 1.2 billion euros, up 10% compared to the end of the previous quarter.
Among those flows was the continuation of some of the trends seen in 2020. For example, prevailing risk sentiment saw equity ETFs net nearly 90% of total Q1 flows while seeing total assets. increase by 15% quarterly.
At the same time, the dynamic of sustainable investment has seen environmental, social and governance (ESG) ETFs claim 54% of new assets. In fact, while large-cap US stocks were among the top collecting flow categories, many traditional S&P 500 ETFs have languished, suggesting a shift to ESG equivalents.
Jose Garcia-Zarate, Associate Director, Passive Strategy Research, Morningstar, said: “Most of the flow in this category was going to ESG investments, so it’s fair to conclude that some investors who previously had their money in the mainstream S&P 500 ETFs have moved to ESG versions. “
Additionally, despite slower growth in March and fears of foamy valuations, thematic ETFs posted their best quarter ever. Having exceeded at €23.2 billion in assets at the end of 2020, the category grew by 26.7% in the first quarter of the new year, up to 29.4 billion euros.
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However, the “old economy” diverged from last year’s trends with a spin to cyclical stocks fully initiated earlier this year.
“The much-talked-about growth-to-value rotation found confirmation in Q1 flows, with value equity strategies bringing in € 5.3 billion,” Garcia-Zarate continued. “US large-cap value stocks and global large-cap value stocks were among the top 10 Morningstar inflow-collecting categories for the period, while US large-cap growth sluggish in the bottom 10.
Flows to bond ETFs also stood out compared to the end of last year. 9.8 to 4.3 billion euros between the last two quarters.
While US Treasuries and UK gilts struggled with rising yields, inflation-linked EU and US bond ETFs recovered € 1.2 billion in new assets. Likewise, Chinese government bond ETFs recorded inflows of € 2.9 billion.
“Their attractiveness is easy to understand from a risk / reward perspective,” Garcia-Zarate said of Chinese Treasuries. “They offer an excellent rebound in yield relative to developed market government bonds and have proven to be remarkably resilient among the emerging market cohort.
Finally, the smart beta has staged a comeback € 9.6 billion in new assets compared to € 3.8 billion in the previous quarter thanks to the spectacular return in value. The value ETFs alone recorded inflows of 5.3 billion euros.
Small-cap strategies have also continued to rally in recent months, although dividend strategies remain the largest category of smart beta in Europe.