Insights

Another Strong Year for European ETFs – Against All Odds

  • European-domiciled ETFs posted $118 billion of net inflows in 2020, driven by equities, which had a spectacular second half of the year gathering $63 billion since July.
  • Fixed income captured nearly $38 billion in 2020 and, as a vehicle, proved resilient against shocks while serving as a price discovery tool during crisis.
  • Precious metals exposures enjoyed $15 billion of net inflows as the gold price reached all-time highs in 2020.

Flows Reflected Market Sentiment Throughout the Year

European-domiciled ETFs enjoyed a strong 2020, gathering $118 billion of net inflows, almost matching the 2019 number ($125 billion). Although, compared to a year earlier, the quantum was not too different: the top two drivers of those flows swapped places as equity accounted for 54% of 2020 net inflows ($63.6 billion) while fixed income captured 32% of overall flows ($38 billion). Commodity exposures picked up $15.9 billion, mainly driven by gold exposures as the precious metal reached all-time highs exceeding $2,000 per ounce for some time earlier in the year.

The evolution of flows into ETFs reflected performance and market sentiment throughout the year. After a strong January and muted but still positive flows in February, we saw an unprecedented $23 billion of net outflows in March as markets collapsed. That was also the time when precious metals exposures started to enjoy massive net inflows as investors looked for relative safety.

Once the situation stabilized, we initially saw strong flows into fixed income exposures and a continuation of flows into precious metals in Q2. The second part of the year, however, was marked by a spectacular comeback for equities, which posted $63 billion of net inflows since July, fueled by rallying equity prices. Vaccine news accelerated this flow trend and also triggered some outflows from precious metals as markets went strongly risk on.

Figure 1: Net Inflows of European-Domiciled ETFs in 2020

Equity Investors Went Global But Also Favoured US and EM

Global exposures dominated equity flows in 2020, gathering $36 billion – or more than 50% of all equity flows. Investors who did not go global preferred US over Europe and the UK due to the lower magnitude of lockdowns and local uncertainties such as Brexit.

Emerging markets initially suffered net outflows as COVID-19 had severe consequences particularly for countries like India and Brazil. However, as the rally and hope for a vaccine progressed, and economies started to rebound sharply, flows into emerging markets returned and, led by China, brought full-year net inflows to $8.3 billion.

Within sectors, technology gathered $5.5 billion as tech companies provided both growth and a degree of risk protection as the demand for software and hardware remained robust. Health care initially followed, but inflows into that sector lost steam in the second half of the year as sentiment improved and investors looked for returns elsewhere.

Fixed Income Products Proved Robust

Government and corporate exposures captured a combined $28.7 billion of net inflows in 2020, accounting for more than 75% of total fixed income net inflows. This marked another strong year as the fixed income offering expanded, particularly in the ESG space. However, it is equally important that, as a product, fixed income ETFs proved resilient against deep market shocks and served as a price discovery tool where no price for the underlying asset was available – for example when markets first digested the COVID-19 crisis in March 2020. The crisis represented a great test for fixed income ETFs, and the ETFs passed.

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Flows

European-Domiciled ETP Segment Flows(Top/Bottom 5, $mn)

European-Domiciled ETP Asset Category($mn)

Sources: Bloomberg Finance L.P., for the period 28-31 December 2020. Flows are as of date indicated and should not be relied upon as current thereafter. This information should not be considered a recommendation to invest in a particular sector or to buy or sell any security shown. It is not known whether the sectors or securities shown will be profitable in the future.