October 7, 2019

Monday Morning Memo: Index Funds Are On the Rise

by Detlef Glow.

With the rise of ETFs, index mutual funds had been out favour with European investors until the year 2015. But even as index funds got some positive momentum since 2016, ETFs still experienced higher inflows. While I was analysing the year-to-date flows at the end of August, I was surprised that index funds (+€52.5 bn) enjoyed higher estimated net inflows than ETFs (+€42.8 bn), as this means that index funds have been the passive investment vehicle of choice for European investors so far for 2019. If this trend continues until the end of the year, they will beat ETFs in terms of net inflows for the first time in history.

Graph 1: Estimated Net Sales of ETFs and Index Funds (Euro Billions)

fund flows index funds vs ETFsg

 

Source: Lipper from Refinitiv

In addition to this, the estimated net flow statistics showed that the flows into passive products (+€95.3 bn) have been higher than the estimated net flows in actively managed funds (+€90.7 bn) over the course of 2019 to date. This means that investors in Europe favoured passive investment vehicles over actively managed funds. Since we have witnessed these kinds of flow trends in the US before, it is still a surprise to see this split in European fund flows.

Graph 2: Market Share of Estimated Net Flows by Product Type, August 31, 2019

fund flows index funds vs ETFs vs mutual funds

 

Source: Lipper from Refinitiv

I am curious to see whether this trend of passive funds outdrawing actively managed funds will continue. I am also curious to see if the leadership of index funds as the passive investment vehicles of choice is only temporary or if this trend will continue in the European fund market.

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

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