Lyxor ETF Money Monitor – October 2019

Lyxor ETF Money Monitor: After their record-setting performance in September, European ETFs continued to enjoy steady inflows in October, gathering €10.7bn….

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By Marlène Hassine Konqui, Head of ETF Research and Kristo Durbaku, ETF Research Analyst

Those inflows were predominantly driven by equities (+€5.3bn) and fixed income (+€2.7bn).

For once, the lion’s share of equity flows for individual countries (+€2.6bn) came from somewhere other than the US.

Somewhat surprisingly, all eyes were on the UK, where equities gathered +€2.3bn after developments in the Brexit saga prompted investors to progressively downplay the prospects of a no-deal outcome.

After three years of wasteful “wait and see,” investors finally seem to have identified what they believe is a reasonable entry point.

Elsewhere, flows into commodities continued (+€229m) and smart beta ETF inflows remained relatively steady at +€492m.

Meanwhile, ESG ETFs continue to break records. Monthly inflows of €1.9bn brought their total to €11.7bn for the year—well in advance of anything they’ve ever achieved before.

Special focus: Record flows into UK Equities

October was another strong month for Equity ETFs, but behind the headlines something unusual happened.

US equity flows were surprisingly muted (+€52mn), while UK equities for once got the lion’s share of the country flows (+€2.3bn out of +€2.6bn).

After an already strong September (+€1.7bn), this presents a remarkable pattern: this is simply the market’s best year-to-date asset gathering on our records, with +€4.4bn cumulated inflows so far.

The most likely catalysts are the developments in the Brexit saga. Despite it being one of the most eventful months in post-war UK politics, investors have responded constructively to the heavy newsflow.

Three key elements – the House of Commons’ vote in favour of Boris Johnson’s Brexit bill, the disagreement over the brevity of the period they were given to discuss and scrutinize it and the government’s eventual request to extend the deadline (now January 2020) – prompted investors to progressively downplay the prospects of a no-deal outcome.

A general election is now planned for 12 December.

Its consequences could be far-reaching and go well beyond the short-term implications of Brexit.

Uncertainty still prevails in currency and equity markets. But after three years of wasteful “wait and see”, investors seem to have identified a reasonable entry-point.

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