Active funds vs ETFs in Europe: flow review so far in 2021

8 November 2021

Have investors favored active management or ETFs in the third quarter of 2021? Do they prefer active management or ETFs to invest in sustainable funds? What about flows to traditional funds?

A regular and optimal analysis of all active management and ETF flows in Europe, made from the proprietary database of BSD Investing * and data from Morningstar allows these questions to be answered. A new-look in the world of portfolio management.

What should we remember about flows in the third quarter of 2021?

Flows in the third quarter of 2021 are down compared to the previous quarter in a more volatile context. Total flows decreased by 17% compared to the second quarter. Flows to equity funds (assets and ETFs) fell sharply in the third quarter of 2021, -38% compared to the second quarter of 2021 to stand at € 60bn. Flows to bond funds were up 10% over the quarter and became higher than equity flows for the first time since the fourth quarter of 2020, at € 84bn

And what about the flows over the whole of 2021?

2021 is still a record year in Europe for inflows supported by fundamentals still solid despite uncertainties about the development of inflation and interest rates. In total Flows are up by 61% and reach € 657bn, close to the record of 2017. Flows to equity funds capture 45% of inflows and are up 44% compared to 2020. The good performance of flows also concerns bond funds, which increased by 28% compared to 2020.

Are there any differences between asset classes?

In equity markets, investors remained cautious about developments in emerging markets and the uncertainty over rate developments. Flows to active and passive equity funds reached their lowest level for 1 year, respectively € 39bn and € 21bn. In bond markets, despite the uncertainties, investor appetite has not waned. It is the sustainable bond funds that continue to be favored by investors. Flows to these funds increased by 24% over the quarter. They now represent a third of bond flows. Note the very good performance of passive bond funds in this segment, whose flows doubled compared to the previous quarter to reach € 6bn.

Active funds capture the majority of flows so far in 2021

Over the first nine months of 2021, mutual fundraising in Europe is still very strong, up 61% compared to the whole of 2020 to reach € 657 billion. It was helped by the good performance of the financial markets despite the increase in volatility in September 2021.

  • On the equity markets, active equity funds remain the big winners in Europe: €209bn collected, 70% of flows to equity funds.
  • On the bond markets, flows to active funds are up 28% compared to 2020 to €161bn, 73% of bond flows.

Flows toward ETF so far in 2021 are above those over the whole of 2020

  • On the equity markets, with €95bn in flows for passive management, 2021 has already surpassed the 2020 record (€ 93bn) and is on the way to exceeding that of 2017 (€112bn).
  • On the bond markets, passive management flows remain strong at € 60bn, already equal to those for the whole of 2020.

The majority of sustainable fund flows are going to active funds.

Over the year as a whole, sustainable flows show an increase of 35% compared to those for 2020 to reach €362 billion. They represent 55% of flows to mutual funds in Europe. Active management collects €276 billion, i.e. more than 75% of these sustainable flows.

Sustainable funds also represent more than half of active fund flows. However, flows to traditional active funds excluding sustainable funds experienced a strong rebound compared to 2020. Traditional management seems to be regaining favor with investors with € 224bn in total inflows over the first 9 months of 2021.

The share of sustainable funds in ETF continues to grow

The flows toward sustainable ETFs is also very strong with €86bn since the start of the year, a historic record, already higher than the total flows for 2020.

Sustainable investments represent a growing share of ETF investments: 65% of equity ETF flows and 33% of bond ETF flows up compared to 2020. Sustainable ETF offer is constantly expanding especially on the fixed income front.

In conclusion, the study of flows in 2021 reveals that investors following the Covid 19 crisis and the rise of sustainable investments have brought to the fore the differentiating role of each investment style to outperform.

*Sources : BSD Investing & Morningstar. Data as of 30/9/2021.

Marlene Hassine Konqui