Turbulent financial markets between 30 April and 30 May this year saw assets managed in European-domiciled exchange traded funds fall by €25.1bn.
Net positive flows of €2.3bn into these ETFs were insufficient to negate the impact of the negative performance in underlying markets, according to Refinitiv’s monthly European ETF Market Report.
The report shows that the level of net flows, while positive, was some way below the monthly rolling 12-month average of €4.4bn.
Saudi flows surge
ETFs focussed on Saudi Arabia caught investors’ imagination in May, with Invesco’s MSCI Saudi Arabia Ucits ETF topping the list of bestselling funds for the month, with net inflows of €0.8bn. Similarly, iShares MSCI Saudi Arabia Capped Ucits ETF was the second most popular passive fund, attracting net inflows of €0.7bn. Also popular was the UBS ETF MSCI Japan Ucits ETF, which saw net inflows of €0.6bn, the third largest ETF in terms of net flows.
Bernie Thurston, chief executive officer of ETF index group Ultumus said that the flows to Saudi Arabia will likely reflect the MSCI classification change, which saw Saudi Arabia included into the emerging markets group for the first time.
He added: “This is being done as a two-phase implementation, with the weight increasing at the August review. Obviously getting exposure to the standalone index will allow people to get exposure ahead of the large emerging market portfolio managers looking to increase their stake in August.”
US equity still top
Sector flow trends isolated in the report show that US equity ETFs were the most popular during May, with net flows of €130.9bn into these funds, followed by global equities at €69.7bn, with eurozone equities in third at €46.8bn.
“The US is typically a favourite because it is a common belief that it is difficult for active managers to outperform in the US,” Patrick Connolly, head of communications at financial advice group Chase de Vere, told Expert Investor.
“The rest of the trend there is an indication of how negatively people are looking at the UK market. People are looking to diversify their portfolios.”
Connolly said the net outflows witnessed over the month were unlikely to be indicative of a trend over a longer 12-month period, however.
“We have seen huge inflows into passive funds in general for some time now and that is a trend that looks like it is going to continue.”
Equity ETFs continue to dominate the market share of European-domiciled funds, with 69% of the market as at the end of May, followed by fixed income (26%), commodities (3%) and money market funds (1%).