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August 6, 2018

Monday Morning Memo: Is the trend toward ETFs in Europe over?

by Detlef Glow.

The fund ecosystem in Europe has become accustomed to new all-time highs and exceptional growth rates in the European ETF industry. But, it is not surprising that some market observers are starting to ask whether the trend toward ETFs in Europe is now over, since ETF flows have seemed to be lower over the course of first half 2018. In addition, we have witnessed a number of mergers and acquisitions in the ETF segment over the last 12 months and a slight increase in the number of fund liquidations. Here I will shed more light on the flows, but the activities with regard to mergers and acquisitions at the fund level are clear signs for me of a maturing market and are consequently rather normal.

Graph 1: European ETF net flows (euro bn), 2003-June 30, 2018

Flows in European ETFs

Source: Lipper

ETFs in Europe enjoyed net inflows of €22.8 bn over the course of the first six months of 2018, which was in fact a strong number in comparison to previous years. The only exception was the year 2017, when the European ETF industry witnessed record net inflows. Although every year cannot be a record year, 2018 might become a new record year for the industry.

To analyze fund flows in a single market segment one has to take the overall market into account, since it may have a general impact on trends in the underlying segments. In this regard, one needs to take a closer look at the overall fund flows in Europe to assess the success of a given product type.

Graph 2: European net fund flows by product type (euro bn), 2004-June 30, 2018

 Flows in European ETFs

Source: Lipper

A look at general fund flow trends in Europe shows that the flows into mutual funds in Europe are rather low. Therefore, it should not come as a surprise to see ETF flows also lower now than in the past, since the overall trend shows weaker demand for funds by European investors in general.

Nevertheless, ETFs hold a large share of these flows. In fact, 2018 could become the year when ETFs have their largest market share in history during a year of overall net inflows. This means there could be another record ahead for ETFs in terms of relative market share, even though the absolute level of inflows into ETFs might not be at a record level.

Graph 3: Market share of fund flows by product type, 2004-June 30, 2018

 Flows in European ETFs

Source: Lipper

It can be concluded that the trend toward ETFs in Europe continues and might be even stronger than before. We are witnessing a higher market share for ETFs compared to mutual funds in this year of overall net inflows into those funds.

The views expressed are the views of the author, not necessarily those of Refinitiv.

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