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Lipper report: European investors ditch active funds for ETFs

Exchange-traded funds attracted €16bn in February, reports Tom Aylott, while mutual funds lost €5.9bn


PA Europe

European investors had a strong appetite for exchange-traded funds (ETFs) in February but less so for mutual funds, according to Lipper’s latest fund flow report.

ETFs saw inflows of €16bn throughout the month while their mutual cousins lost €5.9bn of invested money.

This preference was most notable with products investing in equities. European investors spent almost €15bn on equity-dedicated ETFs in February yet removed over €10bn from mutual funds in the same sector.

Since the start of the year, mutual funds have had positive inflows of €16.7bn from European investors, but this was overshadowed by the €37.1bn received by ETFs over the period.

Movements such as these could imply that European investors are selling actively-managed products in favour of passive vehicles.

The report’s author and head of Lipper’s head of EMEA research Detlef Glow said that “one could agree with this thesis” given the trend in flows this year, but investors should wait for more evidence before drawing a solid conclusion just yet.

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Nevertheless, Glow said it is worth noting that not all passive products are ETFs – almost all the inflows going into mutual funds this year went to passive products.

These vehicles received €16.6bn in the first three months of 2024 while active mutual funds made a modest €0.1bn.

Although investors cannot be certain whether this trend will persist, Glow said that there was a distinctively “large margin” between the two this year.

Overall, bond funds were at the top of European investors’ shopping lists in February, raking in €31.4bn of fresh inflows throughout the month.

Long-term inverted yield curves

Despite these strong inflows, Glow urged some caution, stating: “There are still some concerns about the possibility of a recession in the US and other major economies around the globe. These fears have been raised by a lack of growth in some economies and the long-term inverted yield curves, which are seen as an early indicator for a possible recession.

“The normalisation of inverted yield curves might be another short-term challenge for the bond markets.”

Likewise, the vigour in which European investors have bought equity funds this year could slow as people question just how long the US rally can continue for.

“The performance of these stocks might have reminded some investors of the performance of some stocks before the burst of the dot-com bubble,” Glow said. “As a result, many investors might have been caught between fear and greed when looking at the US equity markets.”