Legal & General IM suffers largest ETF outflows in Europe

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Legal & General Investment Management has suffered the largest outflows among Europe’s exchange traded fund providers so far this year, ahead of the manager’s planned overhaul.

LGIM’s ETFs bled €2.7bn over the first five months of 2024, stalling its growth ambitions, while the ETF industry as a whole had net inflows of €78bn, Morningstar data shows.

The bulk of the outflows have come from a US equity fund that tracks a Paris-aligned benchmark, which has had net withdrawals of €1.65bn. The second worst-selling fund, with €430mn of outflows, is also a Paris-aligned fund and invests in European equities.

The manager has posted net outflows from its ETFs in each month since November 2023.

This article was previously published by Ignites Europe, a title owned by the FT Group.

Legal & General, the manager’s parent company, has announced that it plans to overhaul the business, creating a single asset management division by bringing together the investment management division with its alternative assets unit, Legal & General Capital.

Michelle Scrimgeour, chief executive officer of LGIM, is set to leave the firm as part of the changes.

Legal & General IM said its flows this year have been driven by “strategic asset allocation decisions” that saw clients “rotate their core regional exposures, while expressing their continuing trust in our wider funds”.

“We believe that we are well positioned across new and growing strategies, which continue to see client demand and inflows such as our Gerd Kommer multi-factor, India bond and enhanced commodities ETFs,” the asset manager added.

Kenneth Lamont, senior research analyst at Morningstar, said there was “nothing to concern” Morningstar in its assessment of Legal & General IM’s ETF flows.

The outflows for the two Paris-aligned funds come at a time when investors were re-evaluating their environmental, social and governance exposures, Lamont said.

He said a number of LGIM’s thematic funds had lost assets, which was part of a “broader trend of thematic outflows as investors toggle out of riskier growth plays”.

He added that it was “not all doom and gloom” as the firm’s artificial intelligence fund had been a net beneficiary of flows.

The AI fund has €120mn of net inflows this year, making it Legal & General IM’s second best-selling ETF behind a multi-strategy enhanced commodity fund that has brought in €170mn.

However, LGIM’s ETF outflows appear to have stalled the asset manager’s growth ambitions, which were outlined soon after it acquired Canvas, the European ETF platform owned by ETF Securities.

LGIM said in 2018 that it wanted to become a top 10 ETF provider in Europe within five years.

The asset manager has yet to break into that bracket and its €13.6bn of ETF assets under management represent less than 1 per cent of market share in Europe, according to Morningstar data.

Jose Garcia Zarate, associate director of passive strategies at Morningstar, said Legal & General IM was “hardly” on its way to becoming a top ETF provider “any time soon”, even though ETFs and indexing in general remain a strategic business objective for the firm.

“The company has seen growth in AUM, but so have their competitors, most of which had been in the ETF market for many years ahead of them,” he said.

“No one doubts Legal & General’s proven competency in indexing, but this alone doesn’t guarantee success in a market where increasingly we see a split between mainstream supermarket-type providers and specialists.”

*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at igniteseurope.com.