According to Morningstar’s Europe ETF Asset Flows update for the fourth quarter, fixed income ETFs reported net inflows of €20.6bn for the year, taking their market share from 22.6% in 2015 to 24.1% last year. This despite outflows of €2.5bn in Q4.
The reversal in Q4 comes over the same period as a ratcheting up of inflows into equity ETFs, which saw net flows grow by €14.98bn, a more than threefold increase from the €4.2bn reported in Q3.
Jose Garcia-Zarate, associate director of passive strategies research for Morningstar said the rotation was primarily into developed market equities and gathered speed after Donald Trump’s victory in the US presidential election.
“Sentiment around fixed income in the latter stages of 2016 was strongly conditioned by the firm expectations and subsequent delivery of an increase in interest rates by the US Federal Reserve. Unsurprisingly, US government bond ETFs and, above all, emerging market debt, were on the back foot,” he said, adding that expectations of further rate hikes by the Fed has soured the prospects for these markets into 2017.
According to the firm both US and European large-cap ETFs were favoured, the former boosted by the so-called ‘Trump rally’ and the later by improved sentiment around the outlook for the German and Italian banking sector.
