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September 11, 2023

Monday Morning Memo: Review of the European ETF Market, August 2023

by Detlef Glow.

The European ETF industry enjoyed inflows over the course of August 2023. These inflows occurred in a further unstable market environment over the course of the month in which some asset classes nevertheless showed positive results while others performed negatively. The market sentiment was still driven by hopes that central banks—especially the U.S. Federal Reserve—may have reached the last phase of their fight against high and further increasing inflation rates and may, therefore, start to keep interest rates at least stable quite soon. Some investors already expect that there might be room for decreasing interest rates later this year which might be reflected by the estimated inflows in bond ETFs. Nevertheless, there are still some concerns about geopolitical tensions and the still ongoing normalization of the disrupted delivery chains as well as a still possible recession in the U.S. and other major economies around the globe. These fears are raised by inverted yield curves which are seen as an early indicator for a possible recession.

It is noteworthy that Jacobi Asset Management launched the first Bitcoin spot ETF (Jacobi FT Wilshire Bitcoin ETF GG008BMTPK874) globally on August 15, 2023, which is based in Guernsey. Given its investment focus on a single asset (Bitcoin) the fund is not regulated under the UCITS regulation. Please read my article on the launch of the Jacobi FT Wilshire Bitcoin ETF.

The performance of the underlying markets led in conjunction with the estimated net inflows to decreasing assets under management (from €1,452.2 bn as of July 31, 2023, to €1,444.5 bn at the end of August). At a closer look, the decrease in assets under management of €7.7 bn for August was driven by the performance of the underlying markets (+€17.8 bn), while the estimated net inflows contributed (+€10.2 bn) to the decline in assets under management.

As for the overall structure of the European ETF industry, it was not surprising equity funds (€1,035.8 bn) held the majority of assets, followed by bond funds (€347.3 bn), commodities products (€33.2 bn), money market products (€19.3 bn), alternative UCITS products (€5.3 bn), and mixed-assets funds (€3.7 bn).

Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, August 31, 2023

Source: LSEG Lipper

 

ETF Flows by Asset Type

The European ETF industry enjoyed estimated net inflows (+€10.2 bn). These flows were slightly above the rolling 12-month average (€10.0 bn).

The inflows in the European ETF industry for August were driven by equity ETFs (+€6.4 bn), followed by bond ETFs (+€2.2 bn), money market ETFs (+€1.5 bn), commodities ETFs (+€0.4 bn), and mixed-assets ETFs (+€0.04 bn). On the other side of the table, alternative UCITS ETFs (-€0.3 bn) faced outflows for August 2023.

Graph 2: Estimated Net Sales by Asset Type, August 2023 (Euro Millions)

Review of the European ETF industry, August 2023

Source: LSEG Lipper

 

Assets Under Management by Lipper Global Classifications

In order to examine the European ETF markets in further detail, a review of the Lipper global classifications will lead to more insights on the structure and concentration of assets within the European ETF industry. At the end of August 2023, the European ETF market was split into 166 different peer groups. The highest assets under management at the end of August were held by funds classified as Equity U.S. (€318.4 bn), followed by Equity Global (€222.6 bn), Equity Europe (€70.1 bn), Equity Emerging Markets Global (€68.5 bn), and Equity Eurozone (€50.2 bn). These five peer groups accounted for 50.52% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 62.53%.

Overall, 17 of the 166 peer groups each accounted for more than 1% of assets under management. In total, these 17 peer groups accounted for €1,039.7 bn, or 71.97%, 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 following recovery. As the positions of the 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 by Lipper global classifications continued to be highly concentrated in the European ETF industry.

Graph 3: Ten-Top Lipper Global Classifications by Assets Under Management, August 31, 2023 (Euro Millions)

Source: LSEG 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 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, August 31, 2023 (Euro Millions)

Source: LSEG Lipper

 

ETF Flows by Lipper Global Classifications

The net inflows of the 10 best-selling Lipper classifications accounted for €12.6 bn. In line with the overall sales trend for August, equity peer groups (+€7.1 bn) gathered the majority of flows by asset type on the table of the 10 best-selling peer groups by estimated net inflows. Given the overall fund flow trend in the European ETF industry, it was not surprising that Equity U.S. (+€3.9 bn) was the best-selling Lipper global classification for August. It was followed by Equity Global (+€2.4 bn) and Bond USD Government (+€1.5 bn).

These numbers showed the European ETF segment is also highly concentrated when it comes 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, August 2023 (Euro Millions)

Review of the European ETF industry, August 2023

Source: LSEG Lipper

On the other side of the table, the 10 peer groups with the highest estimated net outflows for August accounted for €4.1 bn in outflows. These outflows were above the outflows for July 2023.

Bond EUR Corporates (-€1.0 bn) was the Lipper Global Classification with the highest outflows for the month. The category was bettered by Bond Emerging Markets Global in Hard Currencies (-€0.6 bn) and Bond JPY (-€0.5 bn).

 

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 24 of the 52 ETF promoters in Europe holding assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€661.1 bn)—accounted for 45.77% of the overall assets under management, far ahead of the number-two promoter—Amundi ETF (€189.8 bn)—and the number-three promoter—Xtrackers (€147.2 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, August 31, 2023 (Euro Millions)

Source: LSEG Lipper

The 10-top promoters accounted for 93.47% 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 6.53% of the overall assets under management.

 

ETF Flows by Promoters

Since the European ETF market is highly concentrated with regard to the assets under management by promoter, it was not surprising that eight of the 10 largest promoters by assets under management were among the 10-top selling ETF promoters for August. Xtrackers was the best-selling ETF promoter in Europe for August (+€2.7 bn), ahead of iShares (+€2.0 bn) and Amundi ETF (+€1.7 bn).

Graph 7: Ten Best-Selling ETF Promoters, August 2023 (Euro Millions)

Review of the European ETF industry, August 2023

Source: LSEG Lipper

The flows of the 10-top promoters accounted for estimated net inflows of €10.6 bn. As for the overall flow trend in August, it was clear that some of the 52 promoters (16) faced estimated net outflows (-€0.9 bn in total) over the course of the month.

Assets Under Management by Funds

There were 3,602 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of August. Regarding the overall market pattern, it was not surprising assets under management at the ETF level were also highly concentrated. Only 332 of the 3,602 instruments held assets above €1.0 bn each. These products accounted for €981.2 bn, or 67.92%, of the overall assets in the European ETF industry. The 10 largest ETFs in Europe accounted for €229.7 bn, or 15.90%, 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, August 31, 2023 (Euro Millions)

Source: LSEG Lipper

 

 

ETF Flows by Funds

A total of 1,275 of the 3,602 instruments analyzed in this report showed net inflows of more than €10,000 each for August, accounting for inflows of €28.0 bn. This meant the other 2,327 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 64 of the 1,275 ETFs posting net inflows enjoyed inflows of more than €100 m during August—for a total of €13.6 bn. The best-selling ETF for August iShares Core S&P 500 UCITS ETF USD (Acc), which enjoyed estimated net inflows of €0.9 bn. It was followed by Xtrackers II EUR Overnight Rate Swap UCITS ETF 1 C (+€0.8 bn) and iShares Core MSCI World UCITS ETF USD (Acc) (+€0.6 bn).

Graph 9: Ten Best-Selling ETFs, August 2023 (Euro Millions)

Source: LSEG Lipper

The flow pattern at the fund level indicated there was a lot of turnover and rotation during August, 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 surprising that only four of the 10 best-selling funds for August were promoted by iShares. These iShares ETFs accounted for total estimated net inflows of €2.2 bn.

 

This article is for information purposes only and does not constitute any investment advice.

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

 

 

 

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