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December 12, 2016

Monday Morning Memo: Review of the European ETF Market, November 2016

by Detlef Glow.

The promoters of exchange-traded funds (ETFs) enjoyed net inflows for November. Positive market impacts in combination with net inflows led to increased assets under management in the European ETF industry (€496.1 bn) for November, up from €483.8 bn at the end of October). The increase of €12.3 bn for November was mainly driven by the performance of markets (+€7.5 bn), while net sales contributed €4.8 bn to the assets under management in the ETF segment. With regard to the overall number of products, it was not surprising that equity funds (€338.8 bn) held the majority of the assets, followed by bond funds (€130.6 bn), commodity products (€16.1 bn), “other” funds (€6.9 bn), money market funds (€2.9 bn), alternative UCITS products (€0.5 bn), and mixed-asset funds (€0.4 bn).

Exhibit 1. Market Share, Assets Under Management in the European ETF Segment by Asset Type, November 30, 2016

16-12-12-graph-1-market-share-aum-by-asset-type

Source: Lipper

Fund Flows by Asset Type

Similar to October, equity ETFs (+€8.2 bn) posted the highest net inflows in the European ETF industry for November, followed by money market ETFs (+€0.1 bn), commodity ETFs (+€0.1 bn) and mixed-asset ETFs (+€0.003 bn). On the other side of the table bond ETFs (-€3.5 bn) showed the highest net outflows, bettered by “other” ETFs (-€0.1 bn) and alternative UCITS ETFs (-€0.02 bn).

The flows for November drove the overall net inflows into the European ETF segment to €35.9 bn for the year so far.

Exhibit 2. Estimated Net Sales, November 2016 (Euro Millions)

European ETF flows November 2016

Source: Lipper

Assets Under Management by Lipper Global Classifications

With regard to the Lipper global classifications, the European ETF market was split into 165 different peer groups. The highest assets under management at the end of November were held by funds classified as Equity US (€79.4 bn), followed by Equity Eurozone (€39.4 bn), Equity Global (€34.6 bn), and Equity Europe (€27.4 bn) as well as Bond EUR Corporates (€27.2 bn). These five peer groups accounted for 41.92% of the overall assets under management in the European ETF segment, while the ten top classifications by assets under management accounted for 59.80%. Overall, 20 of the 165 peer groups each accounted for more than 1% of the assets under management. In total, these 20 peer groups accounted for €358.7 bn or 72.30% of the overall assets under management. These numbers showed that the assets under management in the European ETF industry continue to be highly concentrated.

Exhibit 3. Ten Top Lipper Global Classifications by Assets Under Management, November 30, 2016 (Euro Millions)

European ETF flows November 2016

Source: 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.

Exhibit 4. Ten Smallest Lipper Global Classifications by Assets Under Management, November 30, 2016 (Euro Millions)

European ETF flows November 2016

Source: Lipper

Fund Flows by Lipper Global Classifications

With regard to the overall sales for November, it was not surprising that equity peer groups dominated the ten best selling Lipper classifications. The best selling Lipper global classification for November was Equity US (+€2.6 bn), followed by Equity Global (+€2.0 bn) and Equity Europe (+€1.2 bn). The net inflows of the ten best selling Lipper classifications equalled to 188.14% of the overall inflows. These 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 into ETFs 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.

Exhibit 5. Ten Top Lipper Global Classifications by Estimated Net Sales, November 2016 (Euro Millions)

 European ETF flows November 2016

Source: Lipper

On the other side of the table the ten peer groups with the highest net outflows for November accounted for €4.7 bn of outflows. Bond Emerging Markets Global in Local Currencies (-€1.1 bn) faced the highest net outflows, bettered somewhat by Equity Emerging Markets Global (-€0.9 bn) and Bond Emerging Markets Global in Hard Currencies (-€0.6 bn).

Exhibit 6. Ten Worst Selling Lipper Global Classifications by Estimated Net Sales, November 2016 (Euro Millions)

 European ETF flows November 2016

Source: 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 49 ETF promoters in Europe held assets at or above €1.0 bn each. The largest ETF promoter in Europe—iShares (€240.6 bn)—accounted for 48.51% of the overall assets under management, far ahead of the number-two promoter—db x-trackers (€52.3 bn)—and the number-three promoter—Lyxor ETF (€49.0 bn).(To learn more about the concentration of the European ETF market on the promoter level, please read our report: Is the dominance of big players killing the competition in the European ETF industry?)

Exhibit 7. Ten Top ETF Promoters by Assets Under Management, November 30, 2016 (Euro Millions)

European ETF flows November 2016

Source: Lipper

The ten top promoters accounted for 92.42% of the overall assets under management in the European ETF industry. This meant in turn that the other 39 fund promoters registering at least one ETF for sale in Europe accounted for only 7.58% of the overall assets under management.

Fund Flows by Promoters

Since the European ETF market is highly concentrated, it is not surprising that eight of the ten largest promoters by assets under management were also among the ten top-selling ETF promoters for November. BNP Paribas, with net sales of €1.4 bn, was the best selling ETF promoter in Europe, followed by Source (+€0.9 bn) and Vanguard Group (+€0.8 bn).

Exhibit 8. Ten Best Selling ETF Promoters, November 2016 (Euro Millions)

 European ETF flows November 2016

Source: Lipper

Since the flows of the ten top promoters accounted for 112.72% of the overall estimated net flows into ETFs in Europe for November, it was clear that some of the 49 promoters (13) faced net outflows (-€0.9 bn in total) over the course of November.

Assets Under Management by Funds

There were 2,099 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of November. 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 111 of the 2,099 instruments held assets above €1.0 bn each. These products accounted for €285.4 bn or 57.54% of the overall assets in the European ETF industry. The ten largest ETFs in Europe accounted for €87.1 bn or 17.56% of the overall assets under management. (Please read our study: Is the European ETF industry dominated by only a few funds? to learn more about the concentration at the single-fund level in the European ETF industry.)

Exhibit 9. Ten Largest ETFs by Assets Under Management, November 30, 2016 (Euro Millions)

 European ETF flows November 2016

Source: Lipper

ETF Flows by Funds

A total of 684 of the 2,099 instruments analyzed in this report showed net inflows of more than €10,000 each for November, accounting for €19.3 bn or 402.83% of the overall net flows. This meant in turn that the other 1,415 instruments faced no flows or net outflows for the month. In more detail only 47 of the 684 ETFs posting net inflows enjoyed inflows of more than €100 m each during November, summing to €10.0 bn. The best selling ETF for November,  iShares Core S&P 500 UCITS ETF USD (Acc), accounted for net inflows of €0.7 bn or 14.15% of the overall net inflows; it was followed by  Vanguard S&P 500 UCITS ETF USD (+€0.5 bn) and iShares Core MSCI World UCITS ETF USD (Acc) (+€0.5 bn).

Exhibit 10. Ten Best Selling ETFs, November 2016 (Euro Millions)

 European ETF flows November 2016

Source: Lipper

The flow pattern at the fund level showed the concentration even better than the statistics at the promoter or classification level. Overall, four of the ten best selling funds for November were promoted by iShares and accounted for total net inflows of €1.8 bn or 38.51% of the overall net inflows in the European ETF segment.

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