New analysis has revealed that investor interest for exchange-traded products (ETPs) in Europe has taken a dramatic upswing in the first half of 2014.

Jose Garcia-Zarate, senior ETF analyst at Morningstar.

According to preliminary data calculated by Morningstar, the European ETP market received €22.9 billion in net inflows in H1 2014. This more than doubles the total net inflows for the whole of 2013 and stands just €4.3 billion shy of that for the whole of 2012.

Meanwhile, total assets under management in ETPs at the end of H1 2014 stood just under €342 billion, up from EUR 302 billion at year-end 2013.

A breakdown of the H1 2014 ETP asset flows data further reveals that:

• Some €13 billion of new money was placed in equity ETPs in H1 2014, and €10 billion in fixed income ETPs;
• Commodity and money market ETPs experienced a mild net outflow during the period of €200 million each; gold, safe-haven, and pricey products also fall from favour;
• In AUM terms, equity ETPs now amount to €233 billion (68% of the total ETP market), fixed income €69 billion (20% of total), and commodities €31 billion (9% of total);
• The remaining 3% of the total AUM resides in “alternative” ETPs, a category that includes all types of leveraged/inverse products as well as currency instruments.

Commenting on the analysis, Jose Garcia-Zarate, senior ETF analyst at Morningstar, said: “Should this trend continue apace in the second half of 2014, the European ETP market would be firmly on course to register net inflows on a par with those seen in the 2008-2010 period, and—capital appreciation permitting—a marked jump in total assets under management. This would run counter to the predictions of many critics of passive investing—and in particular of ETPs—who argued that strong growth of this type of investing was a direct consequence of the global economic crisis and would deflate once active managers were again in a position to sell the virtues of a bull equity market.”

He added: “The data also suggests some support for ‘the great rotation’ into equities. The flows data reveals that while ETP investors placed more net new money in fixed income than equity in the first quarter of 2014 (€5.4 billion vs €2.6 billion), the opposite happened in the second quarter (€4.5 billion vs €10.5 billion). Where we have seen outflows this year, it’s notable that ETP investors are moving out of some of the popular but pricier ETPs. Given the eroding effect of costs on long-term investment returns, it is very encouraging to see that ETP investors are actively discriminating products in cost terms.”