Five ETF Trends to Watch Right Now

1.
Will
investors
move
on
from
US
equities?

In
the
first
quarter,
European
equity
ETFs
raised
36.8
billion
euros,
up
slightly
from
36.4
billion
at
the
end
of
2023,
a
sign
that
investors’
confidence
in
the
stock
market
is
up.
In
particular,
they
sought
to
profit
from
US
stocks’s
rally
through
both
dedicated
and
international
equity
ETFs.
In
the
latter,
the
weighting
of
the
US
market
can
be
as
high
as
70%.

According
to
Morningstar
analysts,
the
US
stock
market
is
overvalued
by
3%.
How
long
can
it
continue
its
run?
David
Sekera,
market
strategist
at
Morningstar,
recently
warned
that
“what
has
worked
over
the
past
year
and
a
half
is
unlikely
to
continue
to
do
so
in
the
future”
and
that
consequently
it
is
time
for
“contrarian
choices.”

Looking
at
the
statistics
of
flows
into
ETFs,
one
wonders
whether
these
contrarian
choices
might
be–
probably
not
European
equities,
which
were
the
hardest
hit
by
outflows
in
the
first
quarter.
While
no
longer
cheap
at
a
price/fair
value
ratio
of
1.05,
they
appear
less
overvalued
than
US
stocks.
Other
contrarian
alternatives
could
be
value
stocks
or
small
caps.

The
best
and
worst
equity
ETFs
categories
in
Q1 

2.
How
will
divergent
monetary
policies
affect
bond
ETFs?

In
the
first
quarter,
bond
ETFs
experienced
a
decline
in
investment
flows
from
14.1
billion
euros
in
the
last
three
months
of
2023
to
just
8.8
billion.
“The
slowdown,
which
was
particularly
pronounced
in
February
and
March,
was
due
to
the
scaling
back
of
rate-cutting
expectations
by
the
US
Federal
Reserve
in
particular,”
explains
José
Garcia-Zarate,
associate
director
of
passive
strategies
research
at
Morningstar.
“Investors
are
now
pointing
to
the
European
Central
Bank
(ECB) to
take
the
initiative
to
cut
rates
before
the
Fed
does.”

In
this
climate,
investors
have
taken
a
rather
cautious
stance
by
favouring
bond
funds
with
ultra-short
maturities
hedged
against
exchange
rate
risk,
in
order
to
take
advantage
of
the
still-high
interest
rates,
without
taking
too
much
risk
on
future
central
bank
moves.

In
the
coming
months,
the
situation
could
change
as
an
ECB
rate
cut
in
June
becomes
increasingly
likely,
after
the
central
bank left
them
unchanged
at
its
April
meeting.
On
the
other
hand,
the
likelihood
of
the
Fed
acting
soon

has
diminished since the
release
of
March’s
inflation
data.

3.
Will
defence
drive
thematic
ETFs
again?

One
of
the
main
surprises
of
the
first
quarter
concerns
thematic
ETFs.
There,
the
theme
of
technology,
despite
an
ongoing
AI
revolution,
was
outweighed
by
what
Morningstar
calls
‘social’
themes,
including
trends
like
consumer
spending,
demographics,
and
the
business
of
wellness.
But
it
was
not
any
of
these
themes
that
took
the
top
spot
in
investors’
interest
but
rather
that
of
security,
including
defence
sector
ETFs,
which
captured
some
€548.4
million
in
the
first
half
of
the
year.

The
figure
is
less
surprising
considering
the
rally
in
defence
stocks
over
the
past
two
years,
which
led
Goldman
Sachs
to
describe
some
big
names
in
the
industry
as
overvalued
earlier
this
month.
It
remains
to
be
seen
whether

the
sector
will
still
be
able
to
benefit
in
the
coming
months
from
the
evolving
situation
in
Eastern
Europe,
the
Middle
East
and
East
Asia.

4.
Gold
could
make
ETCs
shine

Commodities
ETFs
and
ETCs
suffered
outflows
of
2.1
billion
euros
in
the
first
quarter,
following
on
from
the
nearly
EUR
5
billion
that
went
out
at
the
end
of
last
year.
Much
of
this
was
attributable
to
instruments
on
precious
metals,
particularly
gold,
despite
the
fact
that
the
price
rose
to
$2,200
per
ounce
in
March.
Retail
investors
may
well
return
to
buying
gold
ETCs
in
the
coming
months,
partly
as
a
defensive
measure
in
the
face
of
rising
geopolitical
risk
and
ahead
of
the
US
election
cycle.

Peter
Kinsella,
Global
Head
of
Forex
Strategy
at
Union
Bancaire
Privée
(UBP)
points
to
increasing
flows
into
the
gold
market.
In
particular,
“there
has
been
a
notable
increase
in
long
futures
positioning,
suggesting
that
institutional
investors
have
increased
their
exposure
to
the
yellow
metal,”
said
Kinsella,
who
also
points
to
an
increase
in
retail
investors,
though
lagging
behind
most
of
the
uptrend.
“This
broadening
of
the
investor
base
implies
that
the
rally
is
still
ongoing.
We
note
that
retail
investors
remain
underinvested
relative
to
historical
averages,”
the
strategy
added.

5.
The
consequences
of
iShares’
foray
into
active
ETFs 

In
the
coming
months,
ETF
investors
will
also
do
well
to
monitor
developments
in
the

active
ETF
segment
in
Europe.
In
March,
Blackrock-owned
iShares
entered
this
market
with
two
income-oriented
equity
replicants.

“This
marks
the
arrival
of
the
largest
ETF
issuer
in
Europe
in
this
growing
corner
of
the
market,
where
JP
Morgan
remains
the
leading
player
with
a
44
per
cent
share,”
according
to
Morningstar’s
Garcia-Zarate.

Flows
in
European
active
ETFs
by
asset
class

In
the
first
quarter,
active
ETFs
raised
around
2.1
billion
euros,
up
from
1.05
billion
at
the
end
of
2023,
and
assets
reached
33.6
billion
euros.
This
type
of
index
fund
continues
to
represent
a
niche
in
the
European
market
at
about
1.9
per
cent
of
total
assets,
but
they
seem
to
fit
the
needs
of
investors
who
want
to
take
advantage
of
ETFs
as
wrappers
for
active
strategies
at
typically
lower
costs
than
traditional
funds.

This
story
was
originally
published
in
Italian
on
April
26.

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