European ETFs suffer 28% drop in inflows in Q2 2023
'Investors favoured core all-maturity exposures, both government and corporate.'
Assets under management in ETFs and ETCs, however, continued to grow from €1.4trn in Q1 to €1.5trn in Q2. Of these, 68% were invested in equities, 23% in bonds and 7% in commodities.
The slowdown in flows was largely driven by lower appetite for equity market exposure, Morningstar Research found. Despite this, flows into equity ETFs remained positive over the period at €12.7bn, though down 42% from Q1.
Standalone US large-cap blend and Japanese large-cap equities attracted the most interest over the quarter, with inflows of €2.9bn and €2.2bn, respectively.
Value-focused equities was the category which suffered the most, with Q1 disinvestment continuing into the second quarter, during which €1.1bn was pulled from energy sector equity ETFs due to a fall in valuations.
European equity ETF AUM surpasses €1trn for first time
By contrast, flows into bond strategies increased in Q2 to €16bn from €15.1bn in the first three months of 2023.
Overall, bond ETF inflows for the first half of the year reached an all-time high, Morningstar Research said, as investors sought to take advantage of increasing bond yields and tackle portfolio imbalances arising from being underweight in fixed income for several years.
Assets in fixed income ETFs grew to €343bn from €328bn, meaning the quarterly increase was «entirely driven by flows», the firm said.
It added: «Investors favoured core all-maturity exposures, both government and corporate. The increase in interest rates has been a game changer.
»Before the start of the tightening cycle, there was no yield of significance in fixed income markets other than in high-yield bonds, which many investors were reluctant
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