European ETF flows fall – should you invest?

golden balloon shaped as a euro sign next to declining price bars indicating falling European ETF flows — (Image credit: Eoneren via Getty Images)

Flows into European-listed exchange-traded funds slowed in March, having posted a strong first two months of the year.

Investors considering where to invest had been pouring money into European exchange-traded funds (ETFs) in January and February, with net flows in each of these two months reaching €46.8 billion and €45.4 billion respectively, according to data from Morningstar.

However, this slowed to just €9.4 billion in March, with the conflict in the Middle East seemingly deterring investors from putting their money into European ETFs.

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Which European ETFs are attracting flows?

The predominant stance among investors during March was one of caution, but ETFs in some sectors still saw inflows.

“We saw selective interest in areas such as energy, but overall, investors sat firmly on the sidelines and prioritised liquidity and flexibility over making large directional bets,” said Garcia-Zarate.

Much of the monthly decline in flows was due to a sharp reduction in flows into equity ETFs; these fell from €40 billion in February to €8.8 billion in March.

Flows into European ETFs tracking bonds turned negative during the month, registering net flows of -€2.4 billion, compared to inflows of €5.2 billion in February and €8.8 billion in January. This was attributed to inflationary concerns weighing on credit and emerging market debt.

How did European equities perform in March?

Data from BlackRock suggests that, while European ETF flows overall dipped during March, ETFs tracking European stocks were actually among the most popular.

Among exchange-traded products (ETPs – the broad category of funds that ETFs belong to and constitute the majority of) listed in the EMEA (Europe, Middle East and Asia) region, those focused on European equities registered $3.9 billion of inflows – compared to outflows from those focused on US stocks (-$0.7 billion), Japanese stocks (-$0.6 billion) and emerging market stocks (-$0.3 billion).

BlackRock’s data also supported the view that ETF investors put their money into energy funds last month in a bid to profit from higher oil prices, with EMEA-listed energy sector ETP flows rising to their highest level on record ($2.2 billion).

The geographical balance of ETF flows doesn’t reflect the performance of respective stock market indices. The MSCI Europe index, which tracks large- and mid-cap stocks in Europe, fell 9.8% in the month to 31 March, compared to a 6.3% drop in the MSCI World index (which tracks global stocks) and a 4.9% fall in the MSCI USA index.

In other words, while ETFs tracking European equities saw greater flows than those tracking other regions, the continent’s stocks actually underperformed compared to global competitors in terms of price changes.

Dan is a financial journalist who, prior to joining MoneyWeek, spent five years writing for OPTO, an investment magazine focused on growth and technology stocks, ETFs and thematic investing.

Before becoming a writer, Dan spent six years working in talent acquisition in the tech sector, including for credit scoring start-up ClearScore where he first developed an interest in personal finance.

Dan studied Social Anthropology and Management at Sidney Sussex College and the Judge Business School, Cambridge University. Outside finance, he also enjoys travel writing, and has edited two published travel books.