European ETF market reaches record high in 2019 as inflows top EUR100bn

European ETFs gathered a record EUR100.8 billion in 2019, bringing total assets to EUR870 billion (up 40 per cent on 2018), according to Lyxor ETF Research’s Money Monitor 2019 report, which provides an in-depth review of last year’s flows into ETFs domiciled in Europe, and has, for the first time, been expanded to also monitor flows into active funds. 

ETFs have seen accelerated growth in Europe over the past five years compared with growth in the more mature US market (+20 pet cent v 19 pet cent in the US). ETFs now represent 7 pet cent of total European funds’ assets (v 6 pet cent in 2018), with Equity ETFs accounting for 69 pet cent of the market, Fixed Income for 27 pet cent and Commodities for 3 pet cent, the remaining being in the other asset classes.

2019 was undoubtedly the year of Fixed Income, as inflows reached EUR54 billion, bringing total assets to EUR234 billion vs EUR152 billion in 2018. European investors turned to higher yielding opportunities (Corporate Bonds, US Government Bonds, Emerging Markets Bonds, High Yield) and geographical diversification was key, mostly outside Europe. Whilst it’s taken several years for the Fixed Income ETF segment to take off, the trend observed over the past five years looks solid and resilient with an average EUR26 billion of annual inflows.

With regards to Equities, 2019 was a year of contrasts. European equity markets bore the brunt of rising macro-economic uncertainties. There was the threat of ‘no deal’ Brexit in the first half, but the second half saw a sharp rebound on the back of easing trade tensions. ETFs benefitted from the rebound, gathering EUR46 billion while active equity funds saw outflows of EUR43 billion.

UK equities represented an interesting example of open-ended funds-to-ETF rotation. In the context of Brexit, we observed very strong flows into UK equity ETFs throughout the end of 2019, totalling EUR7.1 billion across the last four months. These flows have not been observed on active funds.

Regulatory changes and a growing need for sustainable investment vehicles across the whole investor spectrum fueled a boom in the ESG segment, which collected a record EUR16.5 billion of net new assets last year, bringing total assets under management to EUR30.5 billion.

Smart Beta ETFs also witnessed record growth with EUR9.4 billion cumulated inflows last year. Flows went mainly into Income Generation, Value and Minimum Volatility/Minimum Variance strategies.

Vincent Denoiseux, Head of ETF Research and Solutions at Lyxor Asset Management says: “ETF market share has consistently risen over the past two decades, underlining the increasing adoption among European investors. With this enriched publication including flows into active funds, our aim at Lyxor is to help investors get an even more detailed picture of trends at play in the industry and of flow allocation between active and passive management.”