The European smart beta ETF market had modest total inflows of €555 million in Q3 2017, according to research from Lyxor. Factor allocation ETFs enjoyed a stellar quarter of inflows, netting €1.1 billion, although outflows to fundamental ETFs and risk-based ETFs dampened total flows.
Year-to-date, the European smart beta ETF industry has seen net inflows of approximately €4bn.
The strong flows into factor allocation ETFs represent more than a 50% increase on Q2 flows of €719m. Within factor allocation ETFs, flows into momentum strategies particularly stood out, having gathered most of the flows with €438m. Multi-factor ETFs also registered a strong rebound at €431m after recording outflows in the first half of the year. Value, which has gathered very strong flows throughout the year, continued to collect in Q3, albeit more slowly.
Year-to-date (YTD), flows have been fairly constant into value and income generation strategies which, according to Lyxor, reflects investors search for yield and alternative sources of return in an environment of low yields, and more positive signs on the global economy.
Flows to risk-based ETFs were modestly negative in Q3 (-€60m). Lyxor notes that despite high valuations on stock markets (especially in the US), investors have so far felt no need to protect their portfolios.
Fundamental ETFs, however, saw major Q3 outflows of -€439m, in stark contrast to inflows of €743m recorded in Q2. Flows into income generation strategies were very weak this quarter, but outflows were mainly focused on micro-weighted strategies, which saw negative flows of –€513m. Europe-focused fundamental ETFs gathered €205m, but US-focused counterparts had outflows of –€195m. Lyxor proposes this may be due to eurozone equities tending to outperform US equities during periods when policy uncertainty is reduced and PMI results are higher (as a proxy for economic growth momentum).
YTD, net new smart beta ETF assets at the end of Q3 stand at €4.0bn. Total European smart beta ETF assets are at €33.3bn, up 16% from the end of 2016 (which includes a limited market impact of 4%).