November 18, 2019

Monday Morning Memo: Review of the European ETF Market, October 2019

by Detlef Glow.

October was another positive month for the European ETF industry, as the promoters of ETFs in Europe enjoyed above average inflows in October. These led, in combination with the positive performance of the underlying markets, to an increase in assets under management in the European ETF industry from €795.6 bn as of September 30, 2019, to a new record high of €809.2 bn at the end of October. The increase of €13.6 bn for October was driven by estimated net inflows (+€11.1 bn), while the performance of the underlying markets contributed €2.6 bn to the increase in assets under management.

It was not surprising equity funds (€547.1 bn) held the majority of assets, followed by bond funds (€228.1 bn), commodity products (€21.9 bn), alternative UCITS products (€6.7 bn), money market funds (€3.2 bn), mixed-assets funds (€2.1 bn), and “other” funds (€0.1 bn).

Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, October 31, 2019

Review of the European ETF market, October 2019

Source: Lipper from Refinitiv

Fund Flows by Asset Type

The European ETF industry enjoyed estimated net inflows for October (+€11.1 bn) which were way above the rolling 12-month average. They brought that average up to €5.5 bn from €4.7 bn in September 2019. The inflows in ETFs were driven by equity funds (+€7.0 bn), followed by bond ETFs (+€4.3 bn), commodity ETFs (+€0.3 bn), and mixed-assets ETFs (+€0.1 bn). On the other side of the spectrum, money market ETFs (-€0.5 bn) faced the highest estimated outflows for the month, bettered by alternative UCITS ETFs (-€0.01 bn) and “other” ETFs (-€0.01 bn).

This flow pattern drove the overall net flows to €73.3 bn for 2019. 

Graph 2: Estimated Net Sales, October 2019 (Euro Millions)

Review of the European ETF market, October 2019

Source: Lipper from Refinitiv

Assets Under Management by Lipper Global Classifications

In order to examine Lipper global classifications in further detail, the European ETF market was split into 180 different peer groups. The highest assets under management at the end of October were held by funds classified as Equity U.S. (€151.5 bn), followed by Equity Global (€80.1 bn), Equity Eurozone (€51.2 bn), Equity Europe (€41.5 bn), and Equity Emerging Markets Global (€38.2 bn). These five peer groups accounted for 44.79% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 58.27%. Overall, 18 of the 180 peer groups each accounted for more than 1% of assets under management. In total, these 18 peer groups accounted for €568.7 bn, or 70.28%, of the overall assets under management. In addition, it was noteworthy that the rankings of the largest peer groups were quite stable, indicating European investors use the funds from these peer groups as core holdings and not just as so-called satellite holdings that are bought and sold frequently to implement asset allocation strategies in investor portfolios. That said, the only shift within the five top peer groups was between Equity Emerging Markets Global and Equity Europe, as these two peer groups again changed their positions on the table. These numbers showed assets under management in the European ETF industry continued to be highly concentrated.

Graph 3: Ten-Top Lipper Global Classifications by Assets Under Management, October 31, 2019 (Euro Millions)

Source: Lipper from Refinitiv

The peer groups on the other side of the table showed some funds in the European ETF market are quite low in assets and risk being closed in the near future. They are obviously lacking investor interest and might, therefore, not be profitable for their respective fund promoters (Please read our report: “Is there a consolidation ahead in the European ETF industry?” for more details on this topic). 

Graph 4: Ten Smallest Lipper Global Classifications by Assets Under Management, October 31, 2019 (Euro Millions)

Source: Lipper from Refinitiv

Fund Flows by Lipper Global Classifications

With regard to the overall sales for October, it was not surprising equity funds (+€6.3 bn) dominated the table of the 10 best-selling peer groups by net flows, even as the peer group count was equally split between equity and bond classifications. Accordingly, the best-selling Lipper global classification for October was Equity Global (+€1.5 bn), followed by Bond USD (+€1.4 bn) and Equity UK (+€1.3 bn).

The net inflows of the 10 best-selling Lipper classifications accounted for €10.4 bn. These numbers showed the European ETF segment is also highly concentrated with regard to fund flows by sector. 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 and, therefore, are easy to use, for these purposes.

Graph 5: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, October 2019 (Euro Millions)

Review of the European ETF market, October 2019

Source: Lipper from Refinitiv

On the other side of the table, the 10 peer groups with the highest net outflows for October accounted for €3.2 bn of outflows.

Assets Under Management by Promoters

A closer look at assets under management in the European ETF industry by promoters also showed high concentration since only 22 of the 51 ETF promoters in Europe held assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€377.8 bn)—accounted for 46.69% of the overall assets under management, far ahead of the number-two promoter—Xtrackers (€85.5 bn)—and the number-three promoter—Lyxor ETF (€63.2 bn). (To learn more about the concentration of the European ETF market at the promoter level, please read our report: Spotlight on the concentration at the promoter level in the European ETF industry).

Graph 6: Ten-Top ETF Promoters by Assets Under Management, October 31, 2019 (Euro Millions)

Source: Lipper from Refinitiv

The 10-top promoters accounted for 93.04% of the overall assets under management in the European ETF industry. This meant, in turn, the other 41 fund promoters registering at least one ETF for sale in Europe accounted for only 6.96% of the overall assets under management.

Fund Flows by Promoters

Since the European ETF market is highly concentrated, it was not surprising that eight of the 10 largest promoters by assets under management were among the 10-top selling ETF promoters for October. iShares was the best-selling ETF promoter in Europe for October (+€5.0 bn), ahead of UBS ETF (+€2.1 bn) and Vanguard Group (+€1.2 bn).

Graph 7: Ten Best-Selling ETF Promoters, October 2019 (Euro Millions)

Review of the European ETF market, October 2019

Source: Lipper from Refinitiv

The flows of the 10-top promoters accounted for estimated net inflows of €11.5 bn. Despite the overall flow trend in October, it was clear that some of the 51 promoters (9) faced net outflows (-€0.8 bn in total) over the course of the month.

Assets Under Management by Funds

There were 2,914 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of October. Regarding the overall market pattern, it was not surprising the assets under management at the ETF level were also highly concentrated. Only 181 of the 2,914 instruments held assets above €1.0 bn each. These products accounted for €501.6 bn, or 61.98%, of the overall assets in the European ETF industry. The 10 largest ETFs in Europe accounted for €135.2 bn, or 16.71%, 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).

Graph 8: Ten Largest ETFs by Assets Under Management, October 30, 2019 (Euro Millions)

Source: Lipper from Refinitiv

ETF Flows by Funds

A total of 1,053 of the 2,914 instruments analyzed in this report showed net inflows of more than €10,000 each for October, accounting for €23.5 bn. This meant the other 1,861 instruments faced no flows or net outflows for the month (When looking at this statistic, one needs to bear in mind that some of these instruments are convenience share classes that do not report assets under management. This means Lipper can’t calculate fund flows for these ETFs). In more detail, only 42 of the 1,053 ETFs posting net inflows enjoyed inflows of more than €100 m during October—for a total of €10.7 bn. The best-selling ETF for October, UBS ETF-MSCI United Kingdom UCITS ETF (GBP) A-acc, accounted for net inflows of €1.2 bn. It was followed by iShares Core MSCI Japan IMI UCITS ETF USD (Acc) (+€0.7 bn) and Vanguard FTSE 250 UCITS ETF GBP (+€0.7 bn).

Graph 9: Ten Best-Selling ETFs, October 2019 (Euro Millions)

Source: Lipper from Refinitiv

The flow pattern at the fund level indicated there was a lot of turnover and rotation during October, but it also showed the concentration of the European ETF industry even better than the statistics at the promoter or classification level. Given its size, it was not surprising that seven of the 10 best-selling funds for October were promoted by iShares. These seven ETFs accounted for total estimated net inflows of €3.1 bn.

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

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