European ETF flows slow again Net new assets in the European ETF market decelerated in March to €5.2bn from the €13.7bn we saw in February….
By Marlène Hassine Konqui, Head of ETF Research and Kristo Durbaku, ETF Research Analyst
Equity inflows collapsed (-€1.7bn) after strong outflows from developed market equities (-€2.1bn) and lesser inflows into emerging markets equities (€0.4bn).
At the same time, fixed income ETFs enjoyed massive inflows (€5.8bn) for a fourth consecutive month driven by developed corporate bonds and emerging market government bonds.
Commodity ETFs flows, which had turned ever so slightly positive last month, resumed their negative trend.
It was another positive month for Smart Beta ETFs with €1.1bn of inflows, mostly on the quality factor.
Lastly, ESG flows (€406m) were far lower than in February (€1.1bn) but are still positive on every one of the ESG categories.
Searching for yield
After a pause last year, the hunt for yield is firmly back on track in both the equity and the bond markets, fueled by more dovish central banks and declining interest rates.
In the fixed income space, both investment-grade and high yield corporate bonds have gathered strong inflows year-to-date – and enjoyed a record combined month in March with inflows of EUR3.6bn.
IG corporate bond monthly flows of EUR2.3bn were their second best ever (just after the April 2016 record of EUR2.4bn when the second LTRO was announced).
High yield bond ETF flows reached their own record of EUR1.3bn. Among equities, having been out of favour between mid-2017 and mid-2018, there has been a real revival of interest in income-generating ETFs.
Inflows amounted to EUR1.7bn at the end of March.Historical data tells us that there is a significant inverse correlation between corporate bonds and dividend-paying ETF flows on one side and 10-year German interest rate flows on the other.
Flows into the higher income products tend to peak when interest rates reach record lows.
Should the very low yield environment continue, we expect inflows into corporate bonds and income-generating equity ETFs to continue.