Exchange traded funds are not just gaining wider acceptance in the U.S. The investment vehicle is making headway across many global markets.
For instance, Howie Li, co-head of Canvas at ETF Securities, anticipates further growth for European-listed ETFs, which have gathered record net new assets over the first nine months of the year, Markets Media reports.
Over the first three quarters of the year, European exchange traded products attracted net inflows of $61.6 billion, or 30% more than the recrod set for the same period year-over-year, according to ETFGI data. Additionally, September was the 12th consecutive month of positive net inflows, with European ETP total assets under management rising up to $480 billion. The rapid growth of ETFs in Europe suggests that European investors are warming up to the investment vehicle as a means to gain exposure to markets.
“Investors have recognized the benefits of the ETF wrapper which have an additional layer of liquidity provided by market makers and are listed on an exchange,” Li told Markets Media.
Moreover, Li believes that smart beta and active ETFs could contribute to the next leg of ETF growth.
“Globally there are plenty of products covering the main benchmarks and smart beta ETFs have empowered investors who want to focus on a specific factor or quality,” Li added. “Investors have access to expertise that was previously only available from active managers and, if they understand when and how to use these product, they can get alpha over and above the general market.”
The Europe ETF inflows point to higher market participation as European investors try to capitalize on the improved equities outlook. In the U.S., American investors are also beginning to lean toward overseas markets, notably Eurozone equities, as the multi-year U.S. rally begins to taper off. The WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ), which tracks Eurozone stocks and hedges against a depreciating euro currency, is the most popular U.S.-listed of the year, attracting $14.7 billion in net inflows, according to ETF.com. Meanwhile, the SPDR S&P 500 ETF (NYSEArca: SPY) saw $38.4 billion in net outflows year-to-date.
Eurozone stocks also turning around amid some better-than-expected earnings results and speculation that poor economic data from across the globe could keep the loose monetary policy environment here for longer, Bloomberg reports.
If the Federal Reserve pushes off on hiking its interest rates, other central banks, like the European Central Bank, could be more inclined to expand quantitative easing to maintain a weaker currency against the U.S. dollar.
“So, given a Fed on hold, we could see other central banks, including the ECB and BoJ, augmenting their own monetary stimulus measures in order to weaken their currencies,” Heidi Richardson, Managing Director, is the Head of U.S. Investment Strategy for iShares, said in a research note. “The likelihood of continued easy money is one of the reasons I see a compelling case for considering exposure to stocks in Japan and Europe, and within Europe, to large exporter Germany in particular. It’s true, of course, that the ultimate path of monetary policy—and the dollar—remain uncertain.”
ETF investors can gain exposure to the Eurozone through the iShares MSCI EMU ETF (NYSEArca: EZU) and SPDR EURO STOXX 50 (NYSEArca: FEZ). Investors can also turn to euro-currency hedged ETFs to help diminish the negative effects of a stronger dollar or weaker euro currency. EUR-hedged Eurozone ETF options include the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ), iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) and HEDJ.
For Germany exposure, investors can take a look at the iShares MSCI Germany ETF (NYSEArca: EWG). Additionally, for hedged Germany exposure, investors can turn to the iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG), Deutsche X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) and WisdomTree Germany Hedged Equity Fund (NasdaqGM: DXGE).
For more information on Europe, visit our Europe category.
Max Chen contributed to this article.