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Europe: is it time to go passive?
by Elsa Buchanan on Aug 12, 2013 at 08:39
While flows into European equity funds slowed to a trickle during the past week, passive exchange traded fund (ETFs) inflows became Europe’s ‘bright spot’, according to a report by Bank of America Merrill Lynch.
Credit strategist Barnaby Martin said flows into European equity ETFs were up by $491 million week on week for the seven days to 2 August, versus $149 million for their actively managed counterparts over the same period.
Equity ETFs have represented the bulk of the inflows over eight consecutive weeks.
With data pointing to ETF figures on the upside in the continent, is it time to follow the flow and go passive in Europe?
Stacey Ash, an investment manager at iFunds, believes investors should look at lower-cost passives, considering the value of core-satellite approaches, alongside the breadth of the market.
‘European markets can be segmented by industrial sectors and single country funds. Major indices covering Europe are also available in equal weight indices as opposed to cap-weighted, and minimum variance indices are also available,’ he explained.
If managers predict a two-speed Europe, Ash said ETFs would be a cheap, liquid and efficient way to play this.
‘If an investor feels much more confident about the German economy than, say, France, then it is very easy and low-cost to access the German index and avoid France,’ he said.
Because of their nature, Europe ex-UK tracker funds have all underperformed their benchmark. BCIF Continental European Equity Tracker, HSBC European Index or M&G European Index Tracker returned 34.13%, 35.44% and 34.87% respectively, underperforming the FTSE World Europe ex-UK’s 36.04% 12-month rise.
Alan Miller (pictured), founding partner at SCM Private applies a ‘weighted mix’ of indices, including MSCI Europe ex-UK and Stoxx Europe Select Dividend 30 Index, which he said has saved him between 7 and 8 basis points.
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- BCIF Continental European Equity Trackr L Acc
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- M&G European Index Tracker A Inc
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- Baring Europe Select Trust GBP Inc