It's Not All About Departures From Europe ETFs

Markets Benzinga

Last week's stunning Brexit decision predictably prompted punishment for scores of Europe exchange traded funds, but that doesn't mean investors departed diversified and single-country Europe ETFs.

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In fact, various data points suggest otherwise. As Benzinga reported on Monday, citing data from BlackRock, the world's largest ETF sponsor, the iShares MSCI Germany ETF (EWG) hauled in $177 million in new assets last Friday, the day European and U.S. financial markets absorbed news of the Brexit outcome.

ETF investors have been returning to European exposed ETFs amid the turmoil brought about by the Brexit vote. These inflows seem to have begun to turn the tide after sixteen weeks of consecutive outflows were recorded from funds exposed to European equities, said Markit in a recent note. While not material relative to the more than $130bn in AUM across the largest 50 largest products, since June 23rd 2016 strong daily inflows totalling $365m have resulted in the first positive weekly inflows recorded since the middle of February 2016.

Related Link: Post-Brexit Analysis Shows Many ETFs Did Their Jobs

In what may come as a surprise to some investors, the iShares MSCI United Kingdom ETF (EWU), the largest U.K. ETF trading in New York, is actually inflow positive since June 20. EWU has hauled in $19.5 million in new assets over that period.

The largest weekly inflow into European equity exposed ETFs of $284m has been captured by the iShares MSCI EMU ETF which has just under $10bn in AUM (down over a third since the start of the year). The US listed ETF tracks large and mid-sized companies in Europe that use the euro as their official currency. Six out of the top holdings of the ETF are German, followed by two French firms. The ETF seeing the second highest inflow in the past week, totalling $153m, is the iShares MSCI Germany ETF, adds Markit.

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The iShares MSCI Eurozone ETF (EZU), which allocates over 62 percent of its combined weight to French and German stocks while featuring no U.K. exposure, has added $531.1 million in new assets since June 20.

Still, there are instances of limited appetite for diversified Europe ETFs, particularly those with significant U.K. exposure. The Vanguard FTSE Europe ETF (VGK) hasn't added (or lost) any capital since June 20. That ETF devotes 31.4 percent of its weight to U.K. stocks.

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