Headline figures
Assets Under Management[1]
Chart 1: Assets Under Management of ETFs Listed on the LSE by Asset Type as of September 30, 2023 (£bn)
Source: LSEG Lipper
September was a good month for equity ETF assets and flows, despite rocky US markets (the Magnificent Seven looking a little less magnificent), although with the UK doing somewhat better.
The real news over the month was the upward trend of Treasury yields at the long end. While the Federal Reserve has spent the past year signalling “higher for longer”, investors have to a large extent signalled back “we don’t believe you”. As a result, bond ETF assets on the LSE have gone from £178.16bn to £203.91bn year on year.
Maybe that belief is starting to reassert itself now. Or maybe it’s the effects of quantitative tightening tilting the supply/demand dynamics in the Treasury market in favour of supply. Whatever the case, with three months to go, the “year of bonds” has (to put it mildly) yet to assert itself.
Equity funds are the largest asset type listed on the LSE (75.2%, slightly up on the month, supported by the largest inflows), followed by bonds (22.3%—see chart 1).
Flows
Chart 2: Estimated Net Flows in ETFs Listed on the LSE by Asset Type, September 2023 (£bn)
Source: LSEG Lipper
Total flows were £6.7bn: up on August’s £5.59bn but still well down on July’s £12bn. Despite rocky markets, not least in fixed income, total assets grew month on month.
As with the previous month, only equity flows were seeing much action, with inflows of £56.36bn. Commodity and money market funds enjoyed modest success, attracting £298m and £277m, respectively. On the other hand, bond ETF outflows accelerated to £249m. While this is hardly a flood, it does look like spiking Treasury yields at the long end of the curve are spooking investors.
Chart 3: Ten Best-Selling Lipper Global Classification, September 2023 (£bn)
Source: LSEG Lipper
For the third straight month, September’s two top selling sectors were Equity US (£3.81bn) and Equity Global (£3.07bn): as, indeed has been the case with ETF flows on a pan-European basis over the month. We speculated last month that investors may be taking a more cautious approach to the market, skirting the Magnificent Seven and putting money into equal-weighted S&P 500 funds. Despite the poor month for both the S&P and the Seven—with only Alphabet/Google making gains—the hot money is predominantly going into cap-weighted indices (see table below).
Source: LSEG Lipper
On the Global front, three of the top five sellers are conventional trackers, and two with ESG tilts. JP Morgan has an active fund of the same family—Enhanced Index Equity—in both US and Global classifications.
Source: LSEG Lipper
As a codicil, Bond EMU Government (plus long term) netted £809m for the month, although medium term saw outflows of £137m (the curve dives at five years, which may explain it).
Chart 4: Ten Largest Outflows by Lipper Global Classification, September 2023 (£bn)
Source: LSEG Lipper
Combining hard and local currency, emerging market bonds suffered outflows of £910m for the month—again, in line with European markets. This is likely a reflection of widening US Treasury yields and the strong dollar, thus lessening the attraction of riskier fixed income assets while also putting HC bonds under pressure. Asian equities, both ex-Japan and Japan, also lost their shine (-£855m) despite emerging market equities seeing modest inflows.
It’s also interesting to see USD and both EUR and Global High Yield break in different directions (£344m and -£659m combined). USD Corporates join the latter in the red zone at £155m, which looks something of a jumble.
Lastly, there are less negative sector bets at play this month, with the exception Financials (-£202m). With Treasury values on the slide, even without the addition of recession fears, you can see why some investors may be getting nervy over a potential rerun of March’s mini-banking crisis.
Trading volumes And ETF Flows
Chart 5: ETF Turnover (GBP m) and as a % of Total London Stock Exchange Order Book Turnover
Source: LSEG Lipper
The average traded value for ETFs in September was £8.03bn, which accounts for 10.03% of total London Stock Exchange average daily turnover. That’s a lower absolute number than August’s £9.18bn, and also lower in relative terms (13.74%).
Given that these figures reflect LSE-based trades, it’s unsurprising that we see a little more UK equity action—both large and mid cap. Other than that, top trades seem to be a reasonable reflection of the flows of a more pan-European nature. Most seem to reflect positive moves, other than the Euro high-yield at five (below).
Source: LSEG
Chart 6: Active and Passive, Total Net Assets (LHS, %), and Estimated Net Flows (RHS, £bn), September 2023
Source: LSEG Lipper
There are 58 active and 1,649 passive ETFs listed on the LSE, compared to 104 active and 2,968 passive ETFs registered for sale in at least one country in Europe. This means that 55.8% of all active and 55.6% of all passive ETFs are at least cross listed on the LSE.
Active ETF’s total net assets increased to 1.48% from 1.37%, month on month.
Despite this, active sales were 6.44% of total sales for September, down from 12.63% in August, and absolute sales fell from £706m to £431m.
JP Morgan took £509m, as is evidenced in the table below, with no other promoter making it into double figures for the month.
Table: Ten Best-selling Active ETFs, September 2023 (£m)
Source: LSEG Lipper
New Listings
Chart 7: New listings on the London Stock Exchange since 2004
Source: LSEG Lipper
There have been 127 launches over the first three quarters of the year. While July saw something of a flurry of launches, there were just 11 in August and 12 in September. As we’ve previously speculated, the likely reason for this is that tighter monetary policies has put the squeeze on seed money. Investment banks do not need to take so many risks to get a significant yield back on their cash. Conversely, it has become more expensive for companies to borrow seed money.
Nine of the new launches were bond, the other three equity.
New Launches, September 2023
Source: LSEG Lipper
Flows by Promoter
Chart 8: 10 Best-Selling ETF Promoter for ETFs Listed on LSE, September 2023 (£bn)
Source: LSEG Lipper
There are 28 promoters with ETFs on the LSE. Three had flows of more than £1bn over September, and nine of these accounted for flows of more than £100m.
Despite flows being down month on month, the most successful companies increased their take. DWS attracted the largest number of assets, at £1.63bn, up from August’s £1.05bn. Its most successful asset classes were equity (£1.21bn) and bond (£385m). Second-placed BlackRock took £2.05bn in equity flows, but with £822m of outflows from bond ETFs, while Vanguard’s equity and bond ETFs attracted £1.16bn and £249m, respectively.
[1] This report covers all assets under management and estimated net flows for ETFs listed on the London Stock Exchange. This means while turnover and trading volume are measures that are taken per exchange, flows and assets under management can only be calculated on a pan-European basis, since most ETFs in this report are cross-listed on various exchanges.
