Europe region-specific exchange traded funds have been attracting a lot of attention this year as investors look beyond lofty valuations in U.S. markets for relatively cheaper plays, and the trend may continue.
“We believe there is room for further flows into European equity ETPs. A portion of the 2016 outflow has still yet to return and Q2 European earnings were strong (relative to the U.S.),” BlackRock iShares strategists said in a research note.
Globally, European equity exchange traded product assets under management has increased by 26% since the end of June 2016 while total global ETP assets have risen by 30% over the same period. Year-to-date, $28 billion has found its way into European equity ETPs.
The inflows may reflect investors changing sentiment on European market outlook after investors yanked $34 billion out of European equity ETPs globally last year. Consequently, cash that may have been sitting on the side is finally being put to work.
“Initially, it was European-based investors doing most of the buying, but as political risks rolled off – particularly the French election – many U.S. investors started buying the region and overtook Europeans in terms of percentage of inflows,” according to BlackRock.
Looking at the most popular ETF plays of 2017 so far, broad developed market ETF plays, which include hefty Europe exposure, are ranked among the top picks. For instance, the iShares Core MSCI EAFE ETF (NYSEArca: IEFA) is the second most popular ETF of the year, bringing in $14.0 billion in net inflows, Vanguard FTSE Developed Markets ETF (NYSEArca: VEA) added $10.8 billion and iShares MSCI EAFE ETF (NYSEArca: EFA) experienced $9.5 billion in net flows, according to XTF data. IFEA holds 62.5% in European market exposure, VEA allocates 53.9% toward Europe and EFA includes 63.2%.
The U.S.-listed Europe region-specific ETF segment has attracted $14.1 billion in net inflows, according to XTF data. To put this in perspective, the U.S.-listed ETF universe experienced $271.7 billion in net inflows year-to-date.
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Among the most popular Europe-specific ETF picks, the iShares MSCI EMU ETF (NYSEArca: EZU), which focuses on Eurozone members or does not include the likes of United Kingdom and Switzerland exposure, saw $4.6 billion in net inflows so far this year.
The Vanguard FTSE Europe ETF (NYSEArca: VGK), which takes a broader approach and includes U.K. and Switzerland exposure, added $4.2 billion.
The iShares Core MSCI Europe ETF (NYSEArca: IEUR), which is seen as a cheaper “core” alternative to older iShares Europe ETF (NYSEArca: IEV), has brought in $1.6 billion in net inflows.
The SPDR EURO STOXX 50 (NYSEArca: FEZ), which is similar to EZU in focusing on euro member states, attracted $1.5 billion.
Lastly, the iShares MSCI Europe Financials ETF (NYSEARCA: EUFN), the sole Europe financial sector-specific ETF, added $878.5 million.