European Smart Beta ETF market inflows recovered significantly in Q4 2017 to €909M, after the low reached in Q3 (€555m). That said, Net New Assets stood at €5.0bn at the end of December, which was below their 2016 record and behind average ETF market growth…….
By Marlène Hassine Konqui, Head of ETF Research
AUM was up 22% over the year however at €35.2bn (which includes a limited market impact of 4%). Overall in 2017, flows were steady into factor allocation strategies, notably value, multifactor and momentum, as investors hunted for alternative sources of return in the risk on environment. The major surprise was the declining interest in dividend generation strategies as inflows halved to €1bn
Flows to risk-based ETFs were modestly negative in Q4 (-€144M), as they were for the entire year (-€152M). Despite high stock market valuations, notably in the US, investors have so far felt little need to protect their portfolios given record low levels of volatility. Outflows centred on World and US underlyings, but Europe enjoyed modest inflows at €153M amid some political uncertainties.
Factor allocation ETFs enjoyed the bulk of the inflows both in Q4 (€1.2bn) and in 2017 overall. €4.5bn represented 90% of total smart beta inflows for the year. Value, which has gathered very strong flows throughout, continued to collect in Q4 albeit more slowly with €347M of inflows. Over the year, the value factor gathered nearly €3bn of inflows. Flows into momentum also stood out at €818M in 2017. The quality factor was of lesser interest, but still collected €273M of inflows. In contrast, low beta saw outflows of €479M as markets rose steadily and volatility slumbered. Multi-Factor ETFs continued to attract significant interest with €837M of inflows in 2017, mainly gathered during H2.
Fundamental ETFs suffered Q4 outflows of –€121M, with income-generating strategies losing more of their appeal (-€312M). Europe Fundamental ETFs gathered €137M, but US-related counterparts experienced outflows of –€428M. Overall in 2017, income attribution strategies gathered €670M, which was much less than the €2bn they collected in 2016. The outflows picked up pace in H2 in particular with interest rates rising, especially in the US, and dividends falling