June 14, 2020

Monday Morning Memo: Review of the European ETF Market, May 2020

by Detlef Glow.

As the security markets further recovered from the lockdown-induced downturn caused by the onset of the coronavirus pandemic, May was another positive month for the European ETF industry, with ETF promoters enjoying inflows. The combination of below average inflows and the positive performance of underlying markets led to an increase in assets under management from €777.9 bn as of April 30, 2020, to €798.7 bn at the end of May. The increase of €20.8 bn for May was driven by the performance of the underlying markets (+€15.5 bn), while the net inflows contributed €5.3 bn to the increase in assets.

It was not surprising equity funds (€522.8 bn) held the majority of assets, followed by bond funds (€241.2 bn), commodities products (€22.8 bn), alternative UCITS products (€5.8 bn), money market funds (€4.4 bn), mixed-assets funds (€1.6 bn), and “other” funds (€0.1 bn).

Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, May 31, 2020

European ETF Market Review, May 2020

Source: Refinitiv Lipper

Fund Flows by Asset Type

The European ETF industry enjoyed estimated net inflows for May (+€5.3 bn) which were below the rolling 12-month average. These flows brought that average up to €6.6 bn from €6.5 bn in April 2020. The inflows in ETFs were driven by bond funds (+€6.4 bn), followed by commodities ETFs (+€0.5 bn) and mixed-assets ETFs (+€0.1 bn), while alternative UCITS ETFs (-€0.01 bn), ”other” ETFs (-€0.01 bn), money market ETFs (-€0.4 bn), and equity ETFs (-€1.2 bn) faced outflows.

This flow pattern drove the estimated overall net flows to positive €5.3 bn for the month and positive €3.7 bn year to date.

Graph 2: Estimated Net Sales by Asset Type, May 2020 (Euro Millions)

European ETF Market Review, May 2020

Source: Refinitiv Lipper

Assets Under Management by Lipper Global Classifications

In order to examine Lipper global classifications in further detail, the European ETF market was split into 173 different peer groups. The highest assets under management at the end of May were held by funds classified as Equity U.S. (€154.9 bn), followed by Equity Global (€84.3 bn), Equity Europe (€41.8 bn), Equity Eurozone (€41.0 bn), and Bond EUR Corporates (€37.8 bn). These five peer groups accounted for 45.05% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 58.18%.

Overall, 20 of the 173 peer groups each accounted for more than 1% of assets under management. In total, these 19 peer groups accounted for €581.9 bn, or 72.85%, of the overall assets under management. In addition, it was noteworthy that the rankings of the largest peer groups saw some movements in the single positions after the market turmoil caused by the COVID-19 crisis. Even as positions had been quite stable in the past, this is indicating that European investors use ETFs to trade according to their market views. Even as some of the positions might be core holdings, once investors get into risk-off mode they also reduce their exposure to core asset classes. Nevertheless, 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, May 31, 2020 (Euro Millions)

Source: Refinitiv Lipper

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, May 31, 2020 (Euro Millions)

Source: Refinitiv Lipper

Fund Flows by Lipper Global Classifications

The net inflows of the 10 best-selling Lipper classifications accounted for €6.6 bn. With regard to the overall sales for May, it was not surprising bond funds (+€5.5 bn) dominated the table of the 10 best-selling peer groups by net flows and the peer group count. In line with the overall trend, the best-selling Lipper global classification for May was Bond EUR Corporates (+€1.4 bn), followed by Bond USD High Yield (+€1.0 bn) and Bond Emerging Markets Global HC (+€0.7 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, May 2020 (Euro Millions)

European ETF Market Review, May 2020

Source: Refinitiv Lipper

On the other side of the table, the 10 peer groups with the highest net outflows for May accounted for €4.3 bn of outflows.

Assets Under Management by Promoters

A closer look at assets under management by promoter in the European ETF industry also showed high concentration, with only 20 of the 52 ETF promoters in Europe holding assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€377.8 bn)—accounted for 47.31% of the overall assets under management, far ahead of the number-two promoter—Xtrackers (€83.8 bn)—and the number-three promoter—Lyxor ETF (€61.9 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, May 31, 2020 (Euro Millions)

Source: Refinitiv Lipper

The 10-top promoters accounted for 93.36% of the overall assets under management in the European ETF industry. This meant, in turn, the other 42 fund promoters registering at least one ETF for sale in Europe accounted for only 6.64% of the overall assets under management.

Fund Flows by Promoters

Since the European ETF market is highly concentrated, it was not surprising that six of the 10 largest promoters by assets under management were among the 10-top selling ETF promoters for May. iShares was the best-selling ETF promoter in Europe for May (+€4.0 bn), ahead of JP Morgan (+€0.6 bn) and UBS ETF (+€0.4 bn).

Graph 7: Ten Best-Selling ETF Promoters, May 2020 (Euro Millions)

Source: Refinitiv Lipper

The flows of the 10-top promoters accounted for estimated net inflows of €6.5 bn. Despite the overall flow trend in May, it was clear that some of the 52 promoters (15) faced net outflows (-€1.6 bn in total) over the course of the month.

Assets Under Management by Funds

There were 2,941 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of May. 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 2,941 instruments held assets above €1.0 bn each. These products accounted for €488.0 bn, or 61.10%, of the overall assets in the European ETF industry. The 10 largest ETFs in Europe accounted for €135.0 bn, or 16.85%, 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, May 29, 2020 (Euro Millions)

Source: Refinitiv Lipper

ETF Flows by Funds

A total of 1,024 of the 2,941 instruments analyzed in this report showed net inflows of more than €10,000 each for May, accounting for €21.5 bn. This meant the other 1,917 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 49 of the 1,024 ETFs posting net inflows enjoyed inflows of more than €100 m during May—for a total of €9.5 bn. The best-selling ETF for May, iShares $ HY Corp Bond UCITS ETF USD Dis, accounted for net inflows of €0.5 bn. It was followed by iShares Core S&P 500 UCITS ETF USD (Acc) (+€0.5 bn) and iShares JP Morgan $ EM Bond UCITS ETF USD Dis (+€0.4 bn).

Graph 9: Ten Best-Selling ETFs, May 2020 (Euro Millions)

European ETF Market Review, May 2020

Source: Refinitiv Lipper

 

The flow pattern at the fund level indicated there was a lot of turnover and rotation during May, 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 and the overall trend for net sales on the promoter level, it was not surprising that six of the 10 best-selling funds for May were promoted by iShares. These nine ETFs accounted for total estimated net inflows of €2.2 bn.

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

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