European investors poured £100 billion of new money into the world's hottest investment product last year

  • European investors poured more than €115 billion into exchange-traded funds in 2017.
  • The hot investment products can offer much larger returns than simply investing in underlying assets.
  • More than $US4.5 trillion of capital is held in ETFs globally.

LONDON – European investors bought as much as £102 billion (€115 billion; $US140 billion) of new exchange-traded funds (ETFs) in 2017, according to new data from Thomson Reuters, pushing the investment product’s total assets under management to a fresh record-high.

Thomson Reuters Lipper’s annual review of the ETF market was released on Monday, and found that investors now have more than €630 billion (£559 billion; $US769 billion) of money in ETFs in Europe.

“The European ETF industry enjoyed further increasing popularity with all kinds of investors in 2017,” Thomson Reuters Lipper’s head of EMEA research Detlef Glow said in the report.

“This popularity was seen also in the development of the assets under management; assets held by the European ETF industry increased for a sixth consecutive year and marked a new all-time high at €631.2 billion at the end of December 2017.”

The assets under management (AUM) of European ETFs is skewed heavily towards stocks, with more than 70% of total AUM in the sector held in equity funds. Around 25% is in bond funds, while around 3% is in commodity funds.

“It was noteworthy that the assets under management increased for all asset types over the course of the year 2017,” Glow wrote.

The chart below, provided by Thomson Reuters Lipper, shows the growth of ETFs in Europe over recent years:

European ETF market end of 2017Thomson Reuters Lipper

An exchange-traded fund is a passive fund which tracks an index, rather than an active investment, and seeks to track a given index through frequent buying and selling of individual investments.

Investors have poured money into the products in the past handful of years because when the times are good, ETFs can offer larger returns than simply putting money into actively managed funds, which tend to have much higher fees than ETFs.

While demand for ETFs is skyrocketing in Europe, the continent’s market makes up just a small portion of global AUM in the space, which is now more than $US4.5 trillion.

Most of that exposure is in the USA, where ETFs exist for virtually every imaginable asset class. Investment firms selling ETFs in everything from Bunds to cocoa.

But the market in the USA appears to be showing some signs of slowing down, according to a recent report from Citigroup.

The firm noted earlier in January that, while 2017 saw more ETF launches than the prior year, the products still failed to top the roughly 270 new funds from 2015. At the same time, closures in 2017 hit a record for a second straight year, according to Citigroup data.

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