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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“After two very strong months, March marked a clear shift in investor behaviour,” said Jose Garcia-Zarate, senior principal at investment analysis platform Morningstar Direct. “As geopolitical tensions in the Middle East intensified and market volatility increased, investors became more cautious, pulling back from broad equity and fixed-income exposure.”
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This caution was reflected in the top stocks and funds that DIY investors bought during the month of March.
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.
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.
