The European ETF industry enjoyed healthy inflows over the course of December 2023. These inflows occurred in an increasingly unstable market environment since the geopolitical tensions in Middle East, especially the Red Sea, increased over the course of the month. Nevertheless, some asset classes showed positive results while others performed negatively. Market sentiment was further driven by hopes that central banks—especially the U.S. Federal Reserve—have reached the last phase of their fight against high and further increasing inflation rates given their rather dovish statements during/after the respective central bank meetings in December. Some investors already expected that there might be room for decreasing interest rates early next year, which might be reflected by the estimated inflows in bond ETFs. Despite the dovish statements by the central banks, these estimates might be under scrutiny since inflation in the major economies seems to be more sticky than expected and central banks are held responsible to reach their inflation targets. This could mean that the expected rate cuts start later than investors expect. In addition, there are still some concerns about the outcome of geopolitical tensions in the Red Sea since the actions taken by the Houthi rebels have the power to disrupt the still vulnerable delivery chains. In addition, there are still some concerns about the possibility of a recession in the U.S. and other major economies around the globe. These fears have been raised by long-term inverted yield curves, which are seen as an early indicator for a possible recession. The normalization of inverted yield curves might be another short-term challenge for the bond markets.
The performance of the underlying markets led, in combination with the estimated net inflows, to increasing assets under management (from €1,501.5 bn as of November 30, 2023, to a new all -time-high of €1,563.5 bn at the end of December). At a closer look, the increase in assets under management of €62.0 bn for December was driven by the performance of the underlying markets (+€44.6 bn), while the estimated net inflows contributed (+€17.3 bn) to the increase in assets under management.
As for the overall structure of the European ETF industry, it was not surprising equity funds (€1,127.8 bn) held the majority of assets, followed by bond funds (€369.0 bn), commodities products (€32.3 bn), money market products (€23.9 bn), alternatives products (€6.8 bn), and mixed-assets funds (€3.8 bn).
It is noteworthy that the assets under management in bond, equities, and money market ETFs reached a new all-time high at the end of December 2023.
Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, December 31, 2023
Source: LSEG Lipper
Fund Flows by Asset Type
The European ETF industry enjoyed estimated net inflows (+€17.3 bn). These flows were far above the rolling 12-month average (€13.0 bn).
The inflows for December drove the overall estimated net flows in the European ETF industry up to +€155.6 bn. This means that the European ETF industry missed a new record for estimated inflows despite the strong inflows in December. Nevertheless, 2023 was the second-best year on record with regard to the estimated net flows for the European ETF industry.
The inflows in the European ETF industry for December were driven by equity ETFs (+€13.8 bn), followed by bond ETFs (+€2.7 bn), money market ETFs (+€1.5 bn), and mixed-assets ETFs (+€0.01 bn). On the other side of the table, alternatives ETFs (-€0.05 bn) and commodities ETFs (-€0.6 bn) faced outflows for December 2023.
Graph 2: Estimated Net Sales by Asset Type, December 2023 (Euro Millions)
Source: LSEG Lipper
Assets Under Management by Lipper Global Classifications
In order to examine the European ETF markets in further detail, a review of the Lipper global classifications will lead to more insights on the structure and concentration of assets within the European ETF industry. At the end of December 2023, the European ETF market was split into 168 different peer groups. The highest assets under management at the end of December were held by funds classified as Equity U.S. (€356.8 bn), followed by Equity Global (€249.7 bn), Equity Europe (€77.1 bn), Equity Emerging Markets Global (€70.7 bn), and Equity Eurozone (€54.5 bn). These five peer groups accounted for 51.73% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 63.60%.
Overall, 18 of the 168 peer groups each accounted for more than 1% of assets under management. In total, these 18 peer groups accounted for €1,157.5 bn, or 74.03%, of the overall assets under management. In addition, it was noteworthy that the rankings of the largest peer groups saw some movement in single positions after the market turmoil caused by the COVID-19 crisis and the following recovery. As the positions of the peer groups had been quite stable in the past, this indicates that European investors use ETFs to trade according to their market views. Even as some of these positions might be core holdings, once investors get into risk-off mode they also reduce their exposure to core asset classes. That said, the ranking changes at the top of the league table which happened during the COVID-19 pandemic have not reversed since and now represent the new normal. Nevertheless, these numbers showed assets under management by Lipper global classifications continued to be highly concentrated in the European ETF industry.
Graph 3: Ten-Top Lipper Global Classifications by Assets Under Management, December 31, 2023 (Euro Millions)
Source: LSEG Lipper
The peer groups on the other side of the table showed some product offerings in the European ETF market are quite low in assets under management and the constituents of the respective Lipper classifications risk being closed in the near future. They are obviously lacking investor interest and might, therefore, not be profitable for their respective ETF promoters (Please read our report: “Is there a consolidation ahead in the European ETF industry?” for more details on this topic).
Graph 4: Ten Smallest Lipper Global Classifications by Assets Under Management, December 31, 2023 (Euro Millions)
Source: LSEG Lipper
Fund Flows by Lipper Global Classifications
The net inflows of the 10 best-selling Lipper classifications accounted for €18.2 bn. In line with the overall sales trend for December, equity peer groups (+€14.2 bn) gathered the majority of flows by asset type on the table of the 10 best-selling peer groups by estimated net inflows. Given the overall fund flow trend in the European ETF industry, it was not surprising that Equity U.S. (+€5.9 bn) was the best-selling Lipper global classification for December. It was followed by Equity Global (+€3.2 bn) and Equity Europe (+€2.3 bn).
These numbers showed the European ETF segment is also highly concentrated when it comes to fund flows by sector. Generally speaking, one would expect flows into ETFs would be concentrated since investors often use ETFs to implement their market views and short-term asset allocation decisions. These products are made and, therefore, are easy to use for these purposes.
Graph 5: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, December 2023 (Euro Millions)
Source: LSEG Lipper
On the other side of the table, the 10 peer groups with the highest estimated net outflows for December accounted for €6.3 bn in outflows. These outflows were way above the outflows for 10 peer groups with the highest outflows for November 2023 (€4.3 bn).
Bond USD Government (-€2.0 bn) was the Lipper Global Classification with the highest outflows for the month. The category was bettered by Equity Sector Energy (-€0.9 bn) and Equity UK (-€0.6 bn).
Assets Under Management by Promoters
A closer look at assets under management by promoters in the European ETF industry also showed high concentration, with only 25 of the 55 ETF promoters in Europe holding assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€709.4 bn)—accounted for 45.37% of the overall assets under management, far ahead of the number-two promoter—Amundi ETF (€207.4 bn)—and the number-three promoter—Xtrackers (€162.3 bn). (To learn more about the concentration of the European ETF market at the promoter level, please read our report: Spotlight on the concentration at the promoter level in the European ETF industry).
Graph 6: Ten-Top ETF Promoters by Assets Under Management, December 31, 2023 (Euro Millions)
Source: LSEG Lipper
The 10-top promoters accounted for 93.61% of the overall assets under management in the European ETF industry. This meant, in turn, the other 45 fund promoters registering at least one ETF for sale in Europe accounted for only 6.39% of the overall assets under management.
Fund Flows by Promoters
Since the European ETF market is highly concentrated with regard to the assets under management by promoter, it was not surprising that nine of the 10 largest promoters by assets under management were among the 10-top selling ETF promoters for December. iShares was the best-selling ETF promoter in Europe for December (+€6.9 bn), ahead of Xtrackers (+€3.7 bn) and Vanguard (+€2.0 bn).
Graph 7: Ten Best-Selling ETF Promoters, December 2023 (Euro Millions)
Source: LSEG Lipper
The flows of the 10-top promoters accounted for estimated net inflows of €17.7 bn. As for the overall flow trend in December, it was clear that some of the 55 promoters (14) faced estimated net outflows (-€0.6 bn in total) over the course of the month.
Assets Under Management by Funds
There were 3,356 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of December. Regarding the overall market pattern, it was not surprising assets under management at the ETF level were also highly concentrated. Only 350 of the 3,368 instruments held assets above €1.0 bn each. These products accounted for €1,082.7 bn, or 69.24%, of the overall assets in the European ETF industry. The 10 largest ETFs in Europe accounted for €252.0 bn, or 16.12%, of the overall assets under management. (Please read our study: Is the European ETF industry dominated by only a few funds? to learn more about the concentration at the single-fund level in the European ETF industry).
Graph 8: Ten Largest ETFs by Assets Under Management, December 31, 2023 (Euro Millions)
Source: LSEG Lipper
ETF Flows by Funds
A total of 1,267 of the 3,368 instruments analyzed in this report showed net inflows of more than €10,000 each for December, accounting for inflows of €43.4 bn. This meant the other 2,060 instruments faced no flows or net outflows for the month (When looking at this statistic, one needs to bear in mind that some of these instruments are convenience share classes that do not report assets under management. This means Lipper can’t calculate fund flows for these ETFs). Upon closer inspection, the number of ETFs posting net inflows of more than €100 m for the month is up from 92 at the end of November to 116 for December. The estimated net inflows of these funds account for a total of €27.2 bn. The best-selling ETF for December was iShares Core S&P 500 UCITS ETF USD (acc), which enjoyed estimated net inflows of €1.1 bn. It was followed by Xtrackers MSCI World ESG UCITS ETF 1C (+€0.8 bn) and iShares Core MSCI World UCITS ETF USD (Acc) (+€0.6 bn).
Graph 9: Ten Best-Selling ETFs, December 2023 (Euro Millions)
Source: LSEG Lipper
The flow pattern at the fund level indicated there was a lot of turnover and rotation during December, but it also showed the concentration of the European ETF industry even better than the statistics at the promoter or classification levels since the 10 best-selling ETFs account for inflows of €6.0 bn.
Given its size and the overall trend for net sales at the promoter level, it was surprising that only five of the 10 best-selling funds for December were promoted by iShares. Nevertheless, these iShares ETFs accounted for the majority of the inflows in the 10 best-selling ETFs, as the estimated net inflows for the four ETFs totalled €3.2 bn.
