Eurozone exchange traded funds top $500bn

European exchange traded funds have surpassed $500bn in assets for the first time, with investors pumping money into asset classes buoyed by the European Central Bank's quantitative easing programme.

The total assets of European ETFs rose to $511bn at the end of April, according to data provider ETFGI. It represents a record for assets in the region, illustrating how QE has propelled eurozone share and bond markets to the forefront of global investors' attention.

ETF flows across what is nearly a $3tn global market provide a timely indication of investor sentiment. ETFs are highly liquid, providing investors with a cost effective way to shift in and out of funds that track a variety of asset classes.

"Most people felt the markets would rally and they did, and an ETF makes it easy to implement that view," said Deborah Fuhr managing partner at ETFGI.

But in recent weeks, tumbling prices in bond and stock markets have spurred outflows from eurozone bond ETFs and slowed inflows into equity funds, as investors became wary of chasing this year's very strong price performance in equities and bonds. Eurozone share markets have corrected sharply as government bond yields have climbed and the euro rebounded from $1.05 in mid-March to a current level of $1.1150.

Investors' loss of confidence in the powerful support mechanism of central bank bond purchases, however, has abated, suggesting many see the recent weakening in asset prices as a buying opportunity.

German equity ETFs recovered from four consecutive weeks of outflows to record an inflow of $456m last week, according to Markit.

That comes as eurozone ETF flows indicated a significant shift in investor sentiment towards the euro. On Friday the WisdomTree Europe Hedged Equity Fund, which offers investors exposure to European equities without currency risk and has been popular with US-based investors, saw its first daily outflow since October.

After proving hugely popular with eurozone investors until mid-April, the euro's subsequent recovery against the dollar has weighed on the appeal of currency hedged investment strategies.

The announcement of eurozone QE at the end of January fuelled powerful rallies in European share and bond markets, with huge inflows into ETFs pushing asset prices sharply higher.

"April's data endorses the fact that Europe is the ETP industry's bright spot right now ... It's a great vote of confidence for the region," said Ursula Marchioni, head of ETP research at BlackRock.

Europe's share markets have been the biggest beneficiaries of the inflows fuelled by QE, with eurozone equity ETFs attracting inflows of $23.7bn so far this year according to Markit. That figure is almost double the yearly record of $12.79 recorded during 2013, and almost two-thirds of the total $39.86bn that has flowed into global equity ETFs this year.

"US-based investors have been more concerned about when the [Federal Reserve] will raise interest rates and what impact that will have. European investors have been more positive and put money into equities. The divergence in monetary policy has been fuelling different approaches," said Ms Fuhr.

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