ETF Trend Report – 1st quarter 2017

Thursday 06 April 2017

Expertise, Video

 

 

After a slowdown in 2016, European ETF flows have accelerated again since the beginning of the year: almost 30bn euros have been invested in the first quarter, compared to 42bn for the whole of 2016.

On the equity side, which accounts for two thirds of total inflows, the distribution is broadly diversified, as all geographical exposures show positive net flows: US equities, which top the ranking, as well as global equities, Japan, emerging countries and of course Europe, which continues its recovery after the significant outflows registered in 2016.

This improvement is due to a flurry of positive signals coming from Europe: economic indicators turning to green one by one (employment, growth, inflation...), profits expected to rise after bottoming in 2016, and a particularly attractive valuation compared to historical levels.

Within the Smart Beta universe it is indeed this level of valuation which has led to a large inflow of capital towards the Value factor: more than 1.5 billion euros since the beginning of the year. Another trend, more recent, is developing with investors returning to small- and mid-cap companies, an allocation that corresponds to a partially recovered risk appetite.

On the fixed income side, after a pause at the end of last year, Emerging Markets government bonds are once again in the lead in the first quarter of 2017, as they benefit anew from the search for yield theme.

Within developed countries, the return of inflation, as well as the beginning of a new cycle of rising rates, are at the root of two major trends. On the one hand, for government bonds, investments are mainly directed towards inflation-linked products, which have seen 1.4 bn euros of inflows over the quarter. On the other hand, on corporate bonds, floating-rate notes, which offer a very limited sensitivity to interest rate movements, carry most of the inflows, with 1.7 bn euros.