Market Volatility Spurs ETF Outflows

Europe-domiciled exchange traded funds run by dominant player iShares endured hefty outflows of more than €4 billion in March and April

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An outpouring of money from exchange-traded funds could be a sign that investors are turning away from passives strategies as volatility returns to global stock markets.

Europe-domiciled exchange traded funds run by BlackRock’s iShares endured hefty outflows of more than €4 billion in March and April, according to data from Morningstar Direct.

As the dominant ETF player globally, iShares has traditionally been at the top of the inflows list – investors poured €8.5 billion into its products in the first two months of the year alone. Over the past 12 months, the provider has recording inflows of almost €30 billion. But it’s been rock-bottom for the past couple of months. Flows into ETFs have taken a dip over the past two months. After €20 billion of inflows through January and February, ETFs in total saw just €1.8 billion invested in the past two months, according to data from Morningstar Direct. Many of iShares’ closest rivals have also experienced a tapering in demand. Lyxor, for example, has seen a sharp turn in sentiment, recording inflows of €720 million in February and, just two months later, some €378 million of outflows in April. Vanguard inflows halved in that time to €860 million. iShares says the flows reflect an overall risk-off sentiment in markets, adding that flows highlight the maturing of the European ETF market, “as investors increasingly use our ETFs at the core of their portfolios, and to efficiently adjust their positioning”. “We also saw outflows from large European equity products, which was a reversal of the inflows we saw in Q4 2017 through to the beginning of 2018.” In May, for the first time in its history, Bank of America Merrill Lynch’s monthly fund manager survey asked global professional investors about their allocations to ETFs. Just over half (53%) of respondents said they use passive instruments, including ETFs, in their strategies. Around 80% of managers surveyed said their allocation to ETFs is less than 40% of their assets under management. The weighted average investor AUM allocated to ETFs is 20%, which BAML says is well above the average 11% allocation of its private clients.