Large-cap ETFs booming with European equities back in fashion

One of the prominent macro-trends of the last 12 months has been the return to favour of European equities, driven by attractive valuations and the full backing of the European Central Bank (ECB). This backing includes an unprecedented quantitative easing (QE) programme, which will run until at least September 2016 and the commitment to keep interest rates at a historically low level.

This renewed investor enthusiasm is reflected in net funds flows, with the European large-cap equity ETF sector the main beneficiary, attracting more than €13bn in new money. One of the chief recipients of these flows has been the db x-trackers Euro Stoxx 50 (DR) 1D [DBXE]. The popularity of this fund is unsurprising given its income generating potential, large size and aggressively low management fee of just 0.07 per cent.

Meanwhile, despite uncertainty surrounding rate rises, the US equity market remains buoyant. US large caps have experienced particularly strong net inflows over the 12 month period, helping to push the S&P 500 to record levels.

One of the ETFs that has benefited most from the booming US stockmarket in the past few years has been the distributing Vanguard S&P 500 ETF, [VUSD]. Since its launch in 2012, the fund’s assets under management have ballooned, making it the second largest ETF in Europe. Only the accumulating iShares Core S&P 500 [CSSPX], which has also received generous asset flows, can claim more assets.

The continued dominance of a single player, namely iShares, within the European ETF market is clear from a quick glance at the 10 largest funds (see table). Seven of them are iShares funds. Net flows into iShares ETFs totalled €22.4bn in the year, dwarfing those of nearest rival db X-trackers who attracted €8.7bn.

Kenneth Lamont, Fund Analyst, Morningstar