A view on the overall fund flows in mutual funds for the year 2018 in Europe revealed it was rather a tough year for the fund industry. A more detailed view shows there were different trends driving fund flows. The year started with net inflows in all product categories over the course of the first quarter, followed by rather sluggish inflows in mutual funds over the summer and large outflows from these products in the fourth quarter.
Conversely, ETFs enjoyed another good year with inflows in every single month of 2018. Even as some market observers saw a slowdown in the trend towards ETFs, from my point of view even compared to 2017 lower flows in 2018 are a clear commitment of investors to ETFs since it looks like ETFs have once again become the tool of choice for investors in shaky markets.
In addition to this trend, the introduction of MIFID 2 at the beginning of 2018 enabled market observers for the first time to observe the real size of the European ETF market with regard to trading volumes. Before MIFID 2 it was only possible to calculate a consolidated tape of the on-exchange liquidity of the European market. Since over-the-counter (OTC) transactions were not reported with regard to this, it is not surprising that the reported ETF trading volume quadrupled from roughly €500 billion (2017) to roughly €2 trillion over the course of 2018.
This means the overall trading volume in Europe is more than three times the assets under management of the European ETF industry (€632 billion as of December 31, 2018). Obviously, this trend might have also been driven by the increased volatility in the equity markets, but the main driver for the increase was the change in reporting standards.
Even as we witnessed considerable interest in the European ETF market from fund promoters, service providers, and investment banks that haven’t been active in the ETF market before, the new transparency with regard to trading volumes pushed this interest further up. Therefore, it would be no surprise for me to see new players entering the European ETF industry along all parts of the product chain.
These new market entries could become an additional driver of growth for the European ETF industry since new promoter, market marker or trading platforms are not only looking for new customers, they will also offer their new services to existing clients who might have not be invested in ETFs to this point.
That said, I am quite sure that the year 2019 will be another successful year for the European ETF industry, even as its active peers may face struggles from uncertainty in the equity markets.
The views expressed are the views of the author, not necessarily those of Lipper or Refinitiv.