Passive Fund Inflows Overtake Active In Europe

The total of flows into index trackers and exchange-traded funds in Europe were greater than flows into active funds for the first time.

Detlef Glow, head of Lipper EMEA research at Refinitiv, said at the Refinitiv Lipper Alpha Expert Forum 2019 in London today that assets under management in Europe increased to the end of September this year, compared to the same period last year.

Glow said: “For the first time index trackers had more market share than ETFs.”

Index traders had 9% of market share in first nine months of this year, compared to ETFs with 7%.

“For the first time passive flows were more than active,” he added.  “The competition is on.”

Index trackers had 32% of inflows in the first nine months of this year and ETFs had 31%, meaning that passive flows were more than 50% for the first time.

Detlef Glow, Refinitiv

Glow said part of the reason is that as management fees for ETFs fell to less 10 basis points, the fees for index trackers also fell dramatically.

“In addition some investors cannot use funds with derivatives or securities lending and  index trackers can overcome these constraints,” he added.

ETFs

Hector McNeil, co-chief executive and founder of HANetf, which allows firms to white label ETFs, said at the conference that the next big trend will be active ETFs.

McNeil said: “The US Securities and Exchange Commission will soon approve non-transparent ETF models where issuers do not have to publish a daily file of their underlying holdings.”

David Lake, chief executive of Lyxor UK, the asset management subsidiary of French bank Societe Generale, said half of inflows into ETFs in Europe this year were in fixed income and 12% into ETFs for environmental, social and governance strategies.

Lake said there was plenty of innovation in European ETFs. For example, Lyxor launched the first ETFs to track inflation expectations in 2016 and he continued that assets rose from $100m to $3.5bn in 18 months.

“In 2017 we worked with Equileap to launch the first gender equality ETF,” added Lake.

MJ Lytle, Tabula Investment Management

MJ Lytle, chief executive of fixed income ETF issuer Tabula Investment Management, said at the conference that innovation in fixed income ETFs is only beginning.  He added: “We will soon be issuing a new type of inflation ETF.”

Assets under management

ETFs and ETPs listed in Europe gathered net inflows of $75.3bn in the first nine months of this year according to ETFGI, an ETF research and consultancy firm.

Equity ETFs/ETPs listed in Europe had net inflows of $16.7bn to the end of September this year, substantially less than the $34.2bn in the same period in 2018.

In contrast, fixed income ETFs/ETPs listed in Europe gathered net inflows of $47.9bn in the same period this year, considerably greater than the $11.1bn in the first three quarters of 2018 according to ETFGI.

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