ETP Market Roars Ahead in Europe

LOW-COST FUNDS: Local money is flooding into ETFs, defying critics who said active management would win out when the bull market returned

Jose Garcia Zarate 4 July, 2014 | 10:21AM
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Investor interest in exchange-traded products (ETPs) in Europe has experienced a dramatic upswing in the first half of 2014. According to preliminary data calculated by Morningstar, the ETP market has been the recipient of EUR 23 billion net inflows in the first six months of the year. This is more than double the total net inflows for the whole of 2013. Meanwhile, total assets under management (AUM) in ETPs stood just shy of EUR 342 billion at the 2014 mid-point, up 13% from year-end 2013.

Passive Funds Attract Money in Bull Market

Should this trend continue apace in the second half of 2014, the European ETP market would be firmly on course to register net inflows on a par with those seen in the 2008-2010 period, and - capital appreciation permitting - a marked jump in total assets under management. This would run counter to the predictions of many critics of passive investing – and in particular of ETPs – who argued that strong growth of this type of investing was a direct consequence of the global economic crisis and would deflate once active managers were again in a position to sell the virtues of a bull equity market. The poor net inflows experienced in 2013 relative to previous years seemed to give credence to this theory. In fact, many a headline at the start of 2014 asserted that the ETP market in Europe had plateaued. Well, it seems not!

A Great Rotation?

A breakdown of the H1 2014 data shows that some EUR 13 billion of new money has been placed in equity ETPs and EUR 10 billion in fixed income products. Meanwhile, commodity and money market ETPs have experienced a mild net outflow of EUR 200 million each over the period. In AUM terms, equity ETPs amounted to EUR 233 billion (68% of the total ETP market); fixed income accounted for EUR 69 billion (20% of total); while commodities came in at EUR 31 billion (9% of total). The remaining 3% of the total AUM was placed in what Morningstar terms as “alternative”; a category that includes all types of leverage/inverse products as well as currency instruments. 

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Jose Garcia Zarate

Jose Garcia Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe