ETFs benefit from Brexit effect in June

Compared to the overall fund industry in Europe and despite the increased volatility prior to the “Brexit” vote in the United Kingdom, the promoters of exchange-traded funds (ETFs) enjoyed net inflows for June.

Nevertheless, the assets under management in the European ETF industry declined during June compared to May (€455.5 bn) to €453.6 bn. The decrease of €1.9 bn for June was mainly driven by the performance of the underlying markets (-€5.2 bn), while net sales contributed a positive €3.3 bn to the overall growth in assets under management in the ETF segment.

With regard to the overall number of products, it was not surprising that equity funds (€301.8 bn) held the majority of the assets, followed by bond funds (€122.9 bn), commodity products (€15.8 bn), “other” funds (€6.5 bn), money market funds (€3.5 bn), alternative UCITS products (€0.7 bn), and mixed-asset funds (€0.4 bn).

Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, June 30, 2016

16-07-25 Graph 1 - Market share AuM by Asset Type

Source: Thomson Reuters Lipper

Fund Flows by Asset Type

Taking the flows in the overall European fund industry and the market conditions during June into account, it was somewhat surprising that ETFs enjoyed net inflows. Opposite to the overall fund market, equity ETFs (+€1.6 bn) enjoyed the highest net inflows for the month. They were followed by bond ETFs (+€1.1 bn), “other” funds (+€0.3 bn), commodity products (+€0.2 bn), alternative UCITS products (+€.006 bn), money market funds (+€0.004 bn), and mixed-asset funds (-€0.004 bn).

The flows for June drove the overall net inflows into the European ETF segment to €13.1 bn for the year so far.

Graph 2: Estimated Net Sales, June 2016 (Euro Millions)

16-07-25 Graph 2 - Flows by Asset Type

Source: Thomson Reuters Lipper

Assets Under Management by Lipper Global Classifications

With regard to the Lipper global classifications, the European ETF market was split into 164 different peer groups. The highest assets under management were held by funds classified as Equity US (€67.1 bn), followed by Equity EuroZone (€38.1 bn), Equity Global (€28.8 bn), and Equity Europe (€26.1 bn) as well as Bond EUR Corporates (€25.6 bn). These five peer groups accounted for 40.95% of the overall assets under management in the European ETF segment, while the ten top classifications by assets under management accounted for 59.45%. Overall, 18 of the 164 peer groups each accounted for more than 1% of the assets under management. In total, these 18 peer groups accounted for €317.2 bn or 69.94% of the overall assets under management. These numbers showed that the assets under management in the European ETF industry continued to be highly concentrated.

Graph 3: Ten Top Lipper Global Classifications by Assets Under Management, June 30, 2016 (Euro Millions)

16-07-18 Graph 3 - Sector Outflows

Source: Thomson Reuters Lipper

The peer groups on the other side of the table showed that some funds in the European ETF market are quite low in assets and may face the risk of being closed in the near future. They are obviously lacking investor interest and might therefore not be profitable for the respective fund promoters.

Graph 4: Ten Smallest Lipper Global Classifications by Assets Under Management, June 30, 2016 (Euro Millions)

16-07-18 Graph 3 - Sector Outflows

Source: Thomson Reuters Lipper

Fund Flows by Lipper Global Classifications

With regard to the overall sales for June, it was not surprising that there were five bond peer groups in the ten best selling Lipper classifications. Because of the rather low overall sales numbers, none of the best selling classifications accounted for estimated net sales of €1.0 bn or more. The best selling Lipper global classification for June was Equity US (+€0.9 bn), followed by Equity Global (+€0.9 bn) and Bond EUR Corporates (+€0.8 bn); these inflows equalled to 78.06% of the overall inflows. The numbers showed that the European ETF segment is also highly concentrated with regard to fund flows by sectors. Generally speaking, one would expect the flows in the European ETF segment to be concentrated, since investors often use ETFs to implement their market views and short-term asset allocation decisions; these products are made for and therefore are easy to use for these purposes.

Graph 5: Ten Top Lipper Global Classifications by Estimated Net Sales, June 2016 (Euro Millions)

 16-07-25 Graph 5 Top Selling LGCs

Source: Thomson Reuters Lipper

On the other side of the table the ten peer groups with the highest net outflows for June accounted for €3.0 bn of outflows. Bond EMU Government (-€0.6 bn) faced once again the highest net outflows, again bettered by Equity Japan (-€0.4 bn) and Bond USD High Yield (-€0.3 bn). A view of the general flow trends in Europe during June showed that the flows within the ETF segment were not in line with the overall fund flows, since European investors generally sold equity funds in June. This might mean that European investors prefer to hold their more risky positions in ETFs during uncertain market conditions, since these products are, in contrast to mutual funds, very transparent and easy to trade.

Graph 6: Ten Worst Selling Lipper Global Classifications by Estimated Net Sales, June 2016 (Euro Millions)

 16-07-25 Graph 6 LGC Outflows

Source: Thomson Reuters Lipper

Assets Under Management by Promoters

A closer look at the assets under management in the European ETF industry by promoters also showed high concentration, since only 19 of the 48 ETF promoters in Europe held assets at or above €1.0 bn each. The largest ETF promoter in Europe—iShares (€218.8 bn)—accounted for 48.24% of the overall assets under management, far ahead of the number-two promoter—db x-trackers (€53.7 bn)—and the number-three promoter—Lyxor ETF (€45.8 bn).

Graph 7: Ten Top ETF Promoters by Assets Under Management, June 30, 2016 (Euro Millions)

16-07-25 Graph 7 Top Promoter AUM

Source: Thomson Reuters Lipper

The ten top promoters accounted for 92.37% of the overall assets under management in the European ETF industry. This meant in turn that the other 38 fund promoters registering at least one ETF for sale in Europe accounted for only 7.63% of the overall assets under management.

Fund Flows by Promoters

Since the European ETF market is highly concentrated, it is somewhat surprising that only six of the ten largest promoters by assets under management were also among the ten top-selling ETF promoters for June. iShares, with net sales of €1.5 bn, maintained its position as the best selling ETF promoter in Europe, followed by Vanguard (+€0.7 bn) and Lyxor ETF (+€0.6 bn).

Graph 8: Ten Best Selling ETF Promoters, June 2016 (Euro Millions)

 16-07-25 Graph 8 Top 10 Promoter ENS

Source: Thomson Reuters Lipper

Since the flows of the ten top promoters accounted for 118.9% of the overall estimated net flows into ETFs in Europe for June, it was clear that some of the 48 promoters (11) faced net outflows (-€0.9 bn in total) over the course of June.

Assets Under Management by Funds

There were 2,058 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of June. With regard to the overall market pattern it was not surprising that the assets under management at the ETF level were also highly concentrated. Only 99 of the 2,058 instruments held assets above €1.0 bn each. These products accounted for €252.5 bn or 55.7% of the overall assets in the European ETF industry. The ten largest ETFs in Europe accounted for €77.1 bn or 17.0% of the overall assets under management.

Graph 9: Ten Largest ETFs by Assets Under Management, June 30, 2016 (Euro Millions)

 16-07-25 Graph 9 Top 10 Funds by AUM

Source: Thomson Reuters Lipper

ETF Flows by Funds

A total of 642 of the 2,058 instruments analyzed in this report showed net inflows of more than €10,000 each for June, accounting for €2.8 bn or 86.3% of the overall net flows. This meant in turn that the other 1,416 instruments faced no flows or net outflows for the month. In more detail 26 of the 642 ETFs posting net inflows enjoyed inflows of more than €100 m each during June, summing to €5.0 bn. The best selling ETF for June, iShares Core S&P 500 UCITS ETF, accounted for net inflows of €0.5 bn or 14.3% of the overall net inflows; it was followed by Vanguard S&P 500 UCITS ETF USD (+€0.5 bn) and iShares Euro Corporate Bond 1-5yr UCITS ETF (+€0.3 bn).

Graph 10: Ten Best Selling ETFs, June 2016 (Euro Millions)

 16-07-25 Graph 10 Top Ten Funds by ENS

Source: Thomson Reuters Lipper

The flow pattern at the fund level showed the concentration even better than the statistics at the promoter or classification level. Overall, six of the ten best selling funds for June were promoted by iShares and accounted for total net inflows of €1.7 bn.

Detlef Glow is head of EMEA Research at Thomson Reuters Lipper

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