European weekly ETF inflows hit highest level this year

Europe’s exchange traded funds have enjoyed their highest weekly net inflows since December 2019 amid the “euphoria” surrounding a potential Covid-19 vaccine.

Equity ETFs sold in Europe hit €5bn in net inflows last week, by far the best sales performance this year, according to Morningstar data.

Last year sales of European equity ETFs only surpassed this level on two occasions, the third week in December, when net inflows hit €7.2bn, and the week at the end of October, when they hit €6.4bn, according to Morningstar.

The best-selling asset class was US large-cap blend equity, with net inflows of €1.5bn, while global large-cap blend equity ETFs had €402m of net sales.

This article was previously published by Ignites Europe, a title owned by the FT Group

The iShares EURO STOXX 50 fund was the biggest individual winner, with €639m in net inflows in the five days to November 13.

Market experts said investors were still trying to work out what the vaccine meant for technology companies and “old economy” sectors, such as energy, airlines and leisure.

The first positive news from Pfizer and BioNTech on their jointly developed Covid-19 vaccine on November 9, prompted signs of a rotation away from growth funds and into value funds.

There was €238m in net inflows into US large-cap value equity ETF funds compared with net outflows from US large-cap growth equity ETFs of €137m, according to Morningstar.

Andrew Limberis, senior associate at Omba Advisory and Investment, said the vaccine news had allowed investors to have “a better expectation about what’s coming”.

“We have seen some great performance from energy, which has been a beneficiary of the vaccine news at least in the short to medium term,” said Mr Limberis.

With Covid-19 cases still rising in the US and Europe, he said he expected more tough days for the value sector and more volatility.

“It certainly won’t be a one-way street in terms of value outperforming growth,” said Mr Limberis.

Hector McNeil, co-founder of HANetf, a white-label ETF platform, said “the working-from-home trend is still something that people are investing in”, although there had been some pullback from the “puffier tech companies” that have seen their valuations balloon since the first Covid-19 lockdown.

For example, the value of shares in video conferencing company Zoom had fallen 20 per cent following Pfizer’s vaccine announcement last week.

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“Volatility suggests that markets are trying to figure out which way to go. I expect there will be some money coming out of tech,” said Mr McNeil.

However, investor demand for ETFs offering exposure to ecommerce, connectivity infrastructure and cloud technology is still high, he said.

“I think the realisation came pretty quickly that normal is a long way off,” says Mr McNeil.

“The longer [the pandemic] goes on, the more frictional it becomes as people get used to not getting on trains and not flying. That world is going to be very different.”

Chris Beauchamp, chief market analyst at IG, said “the rally has stalled” across Europe this week after the huge gains last week.

“Overall the atmosphere is still positive but as the euphoria about possible routes out of the crisis begins to fade, the focus will shift, to a degree at least, to the manufacture and distribution of the vaccines,” he said.

Mr Beauchamp said the stock market might be considered “vulnerable to some downside via profit-taking” given a 53 per cent gain this month.

However, he said it looked as though investors were prepared to “stick this one out” for now, hoping perhaps that Q2 and Q3 2021 will see a big recovery as the vaccine news filters through to consumers.

*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at igniteseurope.com.