Exchange-traded products see inflows slow

Exchange traded product (ETP) trading activity in Europe has started to slow after investors made a strong commitment in January.

The European ETP market reported a sharp decline in assets under management (AUM) in December, when €2.5 billion (£2.1 billion) was pulled out by investors.

As a more risk-on environment presented itself, this situation reversed at the start of the year and inflows of €2.3 billion were recorded during January.

Such was the interest in ETPs that AUM began to approach record high levels. AUM of €240.6 billion was recorded by the end of January 2012, just shy of the highest ever figure, established last July, when it climbed to €243 billion.

There are signs that this upward trend is starting to lose momentum as February closed with the largest consecutive disparities of the year and the lowest weekly total turnover so far, at €8.7 billion.

Nizam Hamid, the deputy head of Lyxor Exchange Traded Funds (ETFs) and head of ETF strategy, says investor habits within the ETF market are also starting to shift and resemble attitudes seen in 2009/10, particularly within the commodity space.

“We are increasingly seeing clients diversify, something we saw two to three years ago when the space wasn’t all about gold, it was about broad, diversified commodity indices as part of your portfolio. We are starting to see that again from a client perspective,” he says.

In terms of what is in store for the market, the corporate bond sector is an area that is starting to draw keen interest from investors, Hamid says. There is €9.2 billion in AUM in the sector at present.

“We see many clients looking to use euro corporate ETFs purely because of a lack of transparency in the underlying asset class,” explains Hamid.