European ETFs flock to US equity funds

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European ETFs flock to US equity funds

Exchange traded funds have allowed the flow of billions of dollars from Europe into US equity as investors pile into exchange traded funds exposed to this year's huge US stock market rally, according to data from Refinitiv show.

The European flows into US equity exchanges increased to €27 billion in the 10 months to the end of October 2021 - almost four times the €7 billion inflows recorded for US equity investments for the whole of last year, according to Financial Times calculations based on Refinitiv data.

European equity exchanges listed in Europe had attracted only €5 billion of inflows by the end of October, although this was a significant jump on the €2 billion that was achieved last year.

Deborah Fuhr, founder of ETFGI, said that investors were chasing the best returns, and that the flows showed that investors were chasing the best returns. It has nothing to do with European equity ETFs per se. It is more about exposure in terms of where investors think markets are going to be performing better, and asset allocation, she said.

Jose Garcia-Zarate, Associate Director of Passive Research, Europe, Middle East and Africa at Morningstar, agreed that US equity had been particularly attractive. It started at the end of 2020 when the vaccines started to be rolled out. He said that the resurgence of interest in equity, and particularly equity in the US, set the stage for a resurgence of interest in equity.

According to Guillaume Prache, the general preference among European institutional investors for passive strategies to access US equities could be a factor in the flows, according to Guillaume Prache, managing director of BetterFinance.

Garcia-Zarate agreed that passive vehicles, such as ETFs and index funds, are the default investment option for US equity. It is very hard to find an active manager on the US equity market that can beat an index, such as the S&P 500. Patrick Wood Uribe, Chief Executive of Util, said the trend pointed to potential difficulties in maintaining a commitment to sustainable investing if the focus was too much on performance.

There is going to be a dislocation between the source of the asset ownership and the destination of the investment if investing in overseas equities happens too much with European investments. It's going to be an issue if it doesn't get more dissipated over time. At the end of October, assets under management in the EuropeanETF industry rose to around €1.3 tn. US equities ETFs accounted for the lion's share with combined assets under management of €286 bn, followed by global equities €181 bn and European equities €136 bn.