European Smart Beta ETF market flows continued to be sustained in Q3 2016.

New assets into Smart Beta ETFs are already one and a half times the level for the whole of 2015. Year to date, ETF flows were sustained especially in the minimum volatility, dividend & multi-factor strategies as investors looked respectively for risk control, yield and alternative sources of return in a highly uncertain and low interest rate environment.

• Risk based ETFs saw reduced flows in Q3 at EUR246M vs. a year to date quarterly average of EUR908M. Flows were mainly reduced on Min Vol/Min Var ETFs at EUR261M in Q3 vs. a year to date quarterly average of EUR881M. On these ETFs, flows started to reverse in August and outflows accelerated in September at EUR602M. Interestingly, these outflows were mainly concentrated on US underlyings in a context of decreasing uncertainty on the US following the Fed’s positive comments on the strengths of the economy and its willingness to normalize before year end.

• Fundamental ETF inflows increased significantly in Q3 at EUR1.1bn vs. a year to date quarterly average of EUR651M. Dividend ETFs saw significant inflows at EUR1.2bn with investors starving for yield in a low/zero interest rate environment. Both US and European products were in investors’ favour respectively at EUR599M and EUR365M. In these two parts of the world, the low/zero interest rate environment triggered a search for yield. Such ETFs can act as substitutes to fixed income with attractive yield and solid credit profiles.

• Factor allocation ETF flows were positive throughout 2016 although they slowed down in Q3 at EUR329M, vs. a year to date quarterly average of EUR593M. The top 3 factors in demand were Quality, Value and Momentum representing nearly ¾ of total flows for this segment. Flows were mainly focused on developed country underlyings.