US investors’ retreat from Europe has accelerated this month, with the amounts they have pulled from European-focused equity exchange traded funds already exceeding the previous record set in August.
Outflows so far this month from US-listed European equity ETFs have reached nearly $3bn, according to an analysis by Markit, the financial data provider. That was the largest in any month since the first such products were launched more than a decade ago.
The flows were driven by the weaker euro, but they also highlight a global shift in sentiment away from Europe amid fears the continent could slip into a deflationary downswing. “The growth story isn’t really there,” said Simon Colvin, analyst at Markit.
ETFs, which trade like stocks and often track baskets of securities, are used widely by hedge funds as well as retail investors as easy ways to take quick, directional positions on changing economic prospects. Outflows picked up from October 10, after a week of sharp falls in global share prices and continued during last week’s financial market turbulence.
Encouraging US investors to repatriate funds have been transatlantic divergences in monetary policies that have led to the euro falling 9 per cent against the dollar since May. While the US Federal Reserve this month plans to end its quantitative easing, or large scale asset purchases, the European Central Bank is expanding its balance sheet via lending and private sector asset purchases.
This month the International Monetary Fund warned of a 40 per cent chance of a eurozone recession, although purchasing managers’ indices released on Thursday suggested economic activity this month had been stronger than expected.
In depth
The UK, which is not part of the eurozone, has not been immune from the change in sentiment, with this month’s outflows from UK-focused ETFs approaching $700m, also a record.
European equity funds have also seen global investors withdrawing in recent months. Last week saw record outflows of $5.7bn from European equity funds tracked by EPFR, the funds data provider.
However, US investors have not given up on Europe when they can protect against the falling euro. Inflows into US-listed currency-hedged European exposed ETFs have accelerated to $326m this month, which Markit said showed “investors are still keen to gain exposure to the eurozone”.