European Smart Beta ETF market flows accelerated in Q1 2017 at EUR1.8bn.

Total Assets under Management are up 11% vs. the end of 2016, reaching EUR 31.8 billion and including a positive market impact (+4.2%). Net New Assets into Smart Beta ETFs have already reached a quarter of the record high EUR7bn figure reached in 2016. Flows were sustained in Q1 2017, especially in income generation & value strategies as investors looked respectively for yield and alternative sources of return in a low return environment with positive signs on the economic front. Yet these trends decelerated in March with more limited flows on Smart Beta, especially on value.

• Risk based ETF outflows slowed down in Q1 at EUR98M vs. EUR1.5bn in Q4 2016. Outflows decelerated mainly on Min Vol/ Min Var ETFs at EUR58M vs. EUR1.7bn in Q4 2016. On these ETFs, flows started to reverse in August and outgoing money accelerated in September at EUR602M. Interestingly, these flows were split between outflows from US and inflows from European underlyings respectively of EUR125M and EUR111M. This was in a context of decreasing uncertainty on political risk in the US and in Europe.

• Fundamental ETFs saw increased inflows in Q1 at EUR454M vs. a 2016 quarterly average of EUR551M. Income generation strategies saw some flows at EUR407M in a context of volatile interest rates. These were split between inflows into Japanese and Developed World ETFs of EUR439M, while Global ETFs saw outflows of EUR253M. In the other micro weighted strategies, inflows into JPX-Nikkei 400 ETFs were significant at EUR265M in Q1 2017.

• Factor allocation ETFs saw the bulk of the inflows in Q1 2017 with EUR1.5bn of inflows, representing 81% of Q1 2017 Smart Beta ETF flows. The value factor continued to be the winner in terms of flows in Q1 2017, boosted by stronger economic confidence. Inflows into value stood at EUR1.4bn, mainly on US underlyings but closely followed by Europe and Developed world exposures. On the other hand, Low Vol factor and multifactor ETFs saw some outflows at EUR197M. Yet the strong positive trend towards value slowed down in March 2017 with only EUR88M of inflows, as some investors wishing to hedge against possible disappointment in the US macro pulse started switching to growth strategies.

Sources: Monthly data in EURM from 01/04/2016 until 31/03/2017, Bloomberg, Lyxor IAM