October 18, 2021

Monday Morning Memo: Review of the European ETF Market, September 2021

by Detlef Glow.

September 2021 marked the eighteenth consecutive month with inflows into ETFs after the outflows caused by the outbreak of the COVID-19 pandemic in March 2020. These inflows occurred in a negative and volatile market environment in which investor sentiment was still impacted by the dynamics of the COVID-19 pandemic on the economies around the globe and the resulting actions taken by central banks and governments in Europe and other parts of the world. The negative performance of the underlying markets led to decreasing assets under management (from €1,1230.3 bn as of August 31, 2021, to €1,219.4 bn at the end of September) despite estimated net inflows. The decrease of €10.9 bn for September was driven by the performance of the underlying markets (-€23.9 bn), while the estimated net sales contributed €13.0 bn to the assets under management. With regard to assets under management, it was not surprising equity funds (€874.9 bn) held the majority of assets, followed by bond funds (€303.2 bn), commodities products (€29.3 bn), alternative UCITS products (€6.7 bn), mixed-assets funds (€2.8 bn), money market funds (€2.6 bn), and “other” funds (€0.01 bn).

Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, September 30, 2021

Source: Refinitiv Lipper

Fund Flows by Asset Type

The European ETF industry enjoyed healthy estimated net inflows for September (+€13.0 bn) which were below the rolling 12-month average (€14.3 bn).

Graph 2: Estimated Net Sales by Asset Type, September 2021 (Euro Millions)

Review of the European ETF industry, September 2021

Source: Refinitiv Lipper

The inflows in the European ETF industry for September were driven by equity ETFs (+€7.5 bn), followed by bond ETFs (+€5.4 bn), mixed assets ETFs (+€0.1 bn), alternative UCITS ETFs (+€0.03 bn) and “other” ETFs (+€0.01 bn). Meanwhile, money market ETFs (-€0.001 bn) and commodities ETFs (-€0.04 bn) showed outflows for the month.

This flow pattern drove the estimated overall net inflows to €13.0 bn for the month and €126.9 bn for 2021 so far. The flows for the first nine months of 2021 have already topped the level of flows for the former record year 2019 and are set to reach a new all-time high at the end of the year.

Graph 3: Estimated Net Sales (Euro Millions)

Review of the European ETF industry, September 2021

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 167 different peer groups. The highest assets under management at the end of September were held by funds classified as Equity U.S. (€252.2 bn), followed by Equity Global (€160.2 bn), Equity Europe (€60.1 bn), and Equity Emerging Markets Global (€58.7 bn). These five peer groups accounted for 48.31% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 59.67%.

Overall, 21 of the 167 peer groups each accounted for more than 1% of assets under management. In total, these 21 peer groups accounted for €904.5 bn, or 74.18%, of the overall assets under management. In addition, it was noteworthy that the rankings of the largest peer groups saw some movement in single positions after the market turmoil caused by the COVID-19 crisis and the ongoing recovery. As the positions of the top peer groups 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 4: Ten-Top Lipper Global Classifications by Assets Under Management, September 30, 2021 (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 their constituents are at risk of 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 5: Ten Smallest Lipper Global Classifications by Assets Under Management, September 30, 2021 (Euro Millions)

Source: Refinitiv Lipper

Fund Flows by Lipper Global Classifications

The net inflows of the 10 best-selling Lipper classifications accounted for €11.4 bn. With regard to the overall sales for September, it was not surprising equity funds (+€8.2 bn) dominated the table of the 10 best-selling peer groups by net flows, while the peer group count was equally split between equities and bonds. In line with the overall trend, the best-selling Lipper global classification for September was Equity Global (+€3.3 bn), followed by Equity US (+€3.1 bn) and Bond EUR Corporates (+€0.9 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 for, and therefore, are easy to use for these purposes.

Graph 6: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, September 2021 (Euro Millions)

Review of the European ETF industry, September 2021

Source: Refinitiv Lipper

On the other side of the table, the 10 peer groups with the highest estimated net outflows for September accounted for €1.5 bn of outflows.

Assets Under Management by Promoters

A closer look at assets under management by promoters in the European ETF industry also showed high concentration, with only 23 of the 49 ETF promoters in Europe holding assets at or more than €1.0 bn. The largest ETF promoter in Europe—iShares (€554.1 bn)—accounted for 45.44% of the overall assets under management, far ahead of the number-two promoter—Xtrackers (€135.6 bn)—and the number-three promoter—Lyxor ETF (€94.5 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 7: Ten-Top ETF Promoters by Assets Under Management, September 30, 2021 (Euro Millions)

Source: Refinitiv Lipper

The 10-top promoters accounted for 93.08% 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 6.92% of the overall assets under management.

Fund Flows by Promoters

Since the European ETF market is highly concentrated, it was not surprising that seven of the 10 largest promoters by assets under management were among the 10-top selling ETF promoters for September. iShares was the best-selling ETF promoter in Europe for September (+€7.9 bn), ahead of Amundi ETF (+€1.3 bn) and Xtrackers (+€1.2 bn).

Graph 8: Ten Best-Selling ETF Promoters, September 2021 (Euro Millions)

Review of the European ETF industry, September 2021

Source: Refinitiv Lipper

The flows of the 10-top promoters accounted for estimated net inflows of €13.8 bn, or 105.90%, of the overall estimated net inflows. With regard to the overall flow trend in September, it was clear that some of the 49 promoters (14) faced net outflows (-€1.2 bn in total) over the course of the month.

Assets Under Management by Funds

There were 3,107 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of September. Regarding the overall market pattern, it was not surprising assets under management at the ETF level were also highly concentrated. Only 295 of the 3,107 instruments held assets above €1.0 bn each. These products accounted for €814.4 bn, or 66.79%, of the overall assets in the European ETF industry. The 10 largest ETFs in Europe accounted for €182.3 bn, or 14.95%, 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 9: Ten Largest ETFs by Assets Under Management, September 30, 2021 (Euro Millions)

Source: Refinitiv Lipper

ETF Flows by Funds

A total of 1,206 of the 3,107 instruments analyzed in this report showed net inflows of more than €10,000 each for September, accounting for €28.5 bn. This meant the other 1,901 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). Upon closer inspection, only 55 of the 1,206 ETFs posting net inflows enjoyed inflows of more than €100 m during September—for a total of €12.8 bn.

The best-selling ETF for September, iShares Core S&P 500 UCITS ETF USD (Acc), accounted for net inflows of €1.5 bn. The fund was followed by iShares Core MSCI World UCITS ETF USD (Acc) (+€1.1 bn) and iShares Core € Corp Bond UCITS ETF EUR Dist (+€0.7 bn).

Graph 10: Ten Best-Selling ETFs, September 2021 (Euro Millions)

Source: Refinitiv Lipper

The flow pattern at the fund level indicated there was a lot of turnover and rotation during September, 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 at the promoter level, it was somewhat surprising that only five of the 10 best-selling funds for September were promoted by iShares. These iShares ETFs accounted for total estimated net inflows of €3.9 bn, or 30.08%, of the overall flows.

 

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

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