Posted inEquitiesEurope

Investors pile into European small cap ETFs

European equity small and midcap ETFs saw net inflows of $303m (€287m) in February, while net inflows into large cap ETFs decreased to $246m. It was only the second time in history that smaller company trackers saw larger inflows than their large cap equivalents during months that both had positive inflows.

According to Blackrock, the preference for small caps, which tend to be more domestically focused than larger companies, could be a reflection of fears around an increase of economic protectionism.

“This reflects a global investor trend favouring domestic exposures, potentially reflecting fears around the decline in globalisation,” said Patrick Mattar, a member of the iShares EMEA capital markets team.

 ource lackrock Source: Blackrock

Blackrock’s figures follow an analysis by Expert Investor that highlighted the recent outperformance of European small cap equities. If the popularity of smaller companies persists, this could actually be good news for embattled active managers that struggle with passive competitors, and bad news for the likes of iShares.

Investors traditionally prefer to access the small cap universe through active managers rather than via passive solutions. In January, net flows into actively managed small and midcap funds were just shy of €700m.

Value surge

Passive managers have other things to be happy about, however. Macroeconomic optimism is translating into huge flows into value ETFs on both sides of the Atlantic. Value ETFs have seen $2.1bn in net inflows since November, while their low-vol counterparts suffered $1bn in net redemptions.

“Since the US election, there has been a clear rotation from low volatility ETFs towards pro-cyclical factor exposures that tend to outperform in strong macro environments,” said Mattar. Blackrock also observed large inflows into cyclical sector ETFs such as materials and financials, while healthcare and utilities saw large outflows.

Part of the Bonhill Group.