Exchange-traded funds (ETFs) provided the capital markets with a dynamic investment vehicle that served as an alternative to actively managed funds like mutual funds. While the ETF versus the mutual fund is an ongoing debate in the U.S., data out of Europe suggests that active funds may not be sweating the ETF just yet–or are they?
Per a recent CNBC article: “Money market funds — which usually invest in low-risk, liquid assets like short-term bonds — were the best-sellers over the year to date, with inflows of 211.3 billion euros ($248.4 billion), according to Refinitiv’s European Fund Industry Review. Meanwhile, funds focused on global equities were the most popular among long-term investors, with the sector seeing inflows of 62.8 billion euros.”
“ETFs have enjoyed inflows of 48.5 billion euros so far in 2020, and Glow highlighted that their popularity has been growing across all types of investors,” the article noted further. “ETFs are collections of securities that track an underlying index, while mutual funds are actively managed and buy or sell assets strategically in a bid to beat the market and deliver profit to investors.”
Given that, are ETFs giving mutual funds the heebie jeebies?
“If you look at the general assets under management number, we have got 11.1 trillion (euros) invested in mutual funds, this is 92.7% of the market, and we have got only 0.87 trillion invested in ETFs, which is 7.3% of the market,” said Detlef Glow, Refinitive’s Head of Lipper EMEA Research.
Glow “noted that in terms of flows, things looked a bit better for ETFs, with 45.8 billion euros of total inflows, or 15%, going into ETFs and the remaining 85% going into mutual funds.” Glow also noted that there hasn’t been much movement in this figure in recent history.
“This 15% is roughly the average we saw over the last few years, so from my point of view, there is no reason to be majorly concerned about ETFs when it comes to net sales,” Glow said.
ETFs versus mutual funds aside, it was a win-win for all in fund business after a tumultuous first quarter for 2020. European stimulus response to the pandemic benefited all funds since then.
“The strong fiscal and monetary policy response from governments and central banks around the world, and subsequent normalization of markets, led investors back into ETFs and mutual funds in the second and third quarters and brought total net inflows to 297.1 billion euros by the end of September,” the article said.
Hedging with Europe-focused ETFs
Here are a pair of Europe-focused ETFs to watch that feature a hedging approach to mitigate volatility between the euro and U.S. dollar:
- Xtrackers MSCI Europe Hedged Equity ETF (DBEU): seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Europe US Dollar Hedged Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance, of the underlying index, which is designed to track the performance of the developed markets in Europe, while mitigating exposure to fluctuations between the value of the U.S. dollar and the currencies of the countries included in the underlying index. It will invest at least 80% of its total assets in component securities of the underlying index.
- Xtrackers MSCI Eurozone Hedged Equity ETF (DBEZ): seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EMU IMI US Dollar Hedged Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance, of the underlying index, which is designed to track the performance of equity securities based in the countries in the European Monetary Union, while seeking to mitigate exposure to fluctuations between the value of the U.S. dollar and the euro. It will invest at least 80% of its total assets in component securities of the underlying index.
For more market trends, visit ETF Trends.