August 17, 2020

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

by Detlef Glow.

July was another positive month for the European ETF industry since promoters enjoyed inflows as the securities markets stabilized after the coronavirus lockdown-induced economic downturn. The combination of above average inflows and the positive performance of underlying markets led to an increase in assets under management from €830.0 bn as of June 30, 2020, to €843.5 bn at the end of July. The increase of €13.2 bn for July was driven by net inflows (+€13.2 bn), while the performance of the underlying markets contributed €0.1 bn to the increase in assets.

It was not surprising equity funds (€551.5 bn) held the majority of assets, followed by bond funds (€254.8 bn), commodities products (€26.0 bn), alternative UCITS products (€5.8 bn), money market funds (€3.7 bn), mixed-assets funds (€1.6 bn), and “other” funds (€0.2 bn).

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

Review of the European ETF Industry, July 2020

Source: Refinitiv Lipper

Fund Flows by Asset Type

The European ETF industry enjoyed estimated net inflows for July (+€13.2 bn) which were above the rolling 12-month average. Despite these high levels of inflows, the rolling 12-month average declined to €7.2 bn from €7.4 bn in June 2020. The inflows in ETFs were driven by equity funds (+€7.7 bn), followed by bond ETFs (+€5.3 bn), commodities ETFs (+€0.3 bn), alternative UCITS ETFs (+€0.04 bn), and mixed-assets ETFs (+€0.0005 bn). Meanwhile, money market ETFs (-€0.1 bn) and “other” ETFs (-€0.1 bn) faced outflows.

This flow pattern drove the estimated overall net inflows to €13.2 bn for the month and €30.7 bn year to date.

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

Review of the European ETF Industry, July 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 171 different peer groups. The highest assets under management at the end of July were held by funds classified as Equity U.S. (€161.7 bn), followed by Equity Global (€88.4 bn), Equity Eurozone (€45.6 bn), Equity Europe (€42.9 bn), and Bond EUR Corporates (€41.2 bn). These five peer groups accounted for 45.02% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 58.43%.

Overall, 20 of the 171 peer groups each accounted for more than 1% of assets under management. In total, these 20 peer groups accounted for €615.3 bn, or 72.94%, 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 and the ongoing recovery. Even as positions had been quite stable in the past, this indicates that European investors use ETFs to trade according to their market views. Even as some of these 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, July 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, July 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 €9.9 bn. As for the overall sales for July, it was not surprising equity funds (+€6.3 bn) dominated the table of the 10 best-selling peer groups by net flows, while the peer group count was equally split between bond and equity ETFs. In line with the overall trend, the best-selling Lipper global classification for July was Equity Eurozone (+€2.5 bn), followed by Equity US (+€2.0 bn) and Bond EUR Corporates (+€1.3 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, July 2020 (Euro Millions)

Review of the European ETF Industry, July 2020

Source: Refinitiv Lipper

On the other side of the table, the 10 peer groups with the highest estimated net outflows for July accounted for €2.2 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 49 ETF promoters in Europe holding assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€394.5 bn)—accounted for 46.77% of the overall assets under management, far ahead of the number-two promoter—Xtrackers (€89.5 bn)—and the number-three promoter—Lyxor ETF (including the AUM of ComStage) (€70.6 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, July 31, 2020 (Euro Millions)

Source: Refinitiv Lipper

The 10-top promoters accounted for 93.62% of the overall assets under management in the European ETF industry. This meant, in turn, the other 39 fund promoters registering at least one ETF for sale in Europe accounted for only 6.38% 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 July. iShares was the best-selling ETF promoter in Europe for July (+€4.9 bn), ahead of UBS ETF (+€3.6 bn) and Xtrackers (+€2.1 bn).

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

Review of the European ETF Industry, July 2020

Source: Refinitiv Lipper

The flows of the 10-top promoters accounted for estimated net inflows of €14.0 bn. Despite the overall flow trend in July, it was clear that some of the 49 promoters (14) faced net outflows (-€1.6 bn in total) over the course of the month. 

Assets Under Management by Funds

There were 2,937 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of July. Regarding the overall market pattern, it was not surprising assets under management at the ETF level were also highly concentrated. Only 187 of the 2,937 instruments held assets above €1.0 bn each. These products accounted for €508.9 bn, or 60.33%, of the overall assets in the European ETF industry. The 10 largest ETFs in Europe accounted for €136.6 bn, or 16.19%, 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, July 31, 2020 (Euro Millions)

Source: Refinitiv Lipper

ETF Flows by Funds

A total of 1,070 of the 2,937 instruments analyzed in this report showed net inflows of more than €10,000 each for July, accounting for €26.8 bn. This meant the other 1,867 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 56 of the 1,070 ETFs posting net inflows enjoyed inflows of more than €100 m during July—for a total of €13.7 bn. The best-selling ETF for July, iShares Core € Corp Bond UCITS ETF EUR (Dist), accounted for net inflows of €0.7 bn. It was followed by Xtrackers MSCI USA UCITS ETF 2C-EUR hedged (+€0.7 bn) and Xtrackers MSCI USA UCITS ETF 3C-CHF hedged (+€0.6 bn).

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

Source: Refinitiv Lipper

The flow pattern at the fund level indicated there was a lot of turnover and rotation during July, but it also showed the concentration of the European ETF industry even better than the statistics at the promoter or classification levels. Given its size and the overall trend for net sales on the promoter level, it was surprising that only one of the 10 best-selling funds for July was promoted by iShares. This ETF accounted for total estimated net inflows of €0.7 bn.

The views expressed are the views of the author and not necessarily those of Refinitiv. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

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