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Exchange traded funds enabled the flow of billions of dollars from Europe to US equities as investors piled up in ETFs exposed to this year’s major US stock market rally, data from Refinitiv show.

European flows to US equities ETFs industry rose to € 27 billion in the 10 months to end-October 2021 – almost four times the € 7 billion inflows recorded for US equities for the whole of last year, according to Financial Times calculations based on Refinitiv data.

In contrast, European equity ETFs listed in Europe attracted only € 5 billion in inflows by the end of October, although this was also a significant jump from the € 2 billion achieved last year.

Deborah Fuhr, founder of ETFGI, a consulting group, said the flow shows investors are chasing the best returns. “It has nothing to do with European equity ETFs per se. It’s more about exposure in terms of where [investors] think markets will perform better, and also asset allocation, ”she said.

Net flow chart (€ billion) showing European investors piling up in US equities ETFs

Jose Garcia-Zarate, co-director of passive research, Europe, Middle East and Africa at Morningstar, agreed that US equities were particularly attractive. “It all started at the end of 2020, when the vaccines started to be rolled out. “And that paved the way for a revival of interest in equities, and especially for equities in the United States,” he said.

The flow can be explained in part by the general preference among European institutional investors for passive strategies to access US equities, according to Guillaume Prache, managing director of BetterFinance.

Garcia-Zarate agreed: “Passive vehicles, such as ETFs and index funds, are the default investment option for US equities. It is very difficult to find an active manager in the US stock market who can beat an index, such as the S&P 500. ”

But Patrick Wood Uribe, CEO of Util, a provider of sustainable investment data, said the trend points to potential problems in maintaining a commitment to sustainable investment if the focus is too much on performance.

Bar Chart of Assets under Management at the End of October 2021 (€ billion) Showing Top 5 Peer Groups in the European ETF Market

“As [investing in overseas equities] happens too much with European investments, there is going to be a disruption between the source of the asset ownership and the type of destination of the investment. And this is something that, if it does not disappear over time, will be a problem. “

According to Refinitiv, assets under management in the European ETF industry rose to around € 1.3 billion at the end of October. US equities ETFs accounted for most of the combined assets under management of € 286 billion, followed by global equities (€ 181 billion) and European equities (€ 136 billion).

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