Since the Sustainable Finance Disclosure Regulation (SFDR) is a topic of interest for all kinds of market participants and observers, it is worthwhile to shed a light on the current assets under management and the fund flow trends in the European ETF industry with regard to the SFDR.
Assets Under Management by SFDR Article
With regard to overall structure of the European ETF industry, it is no surprise that the vast majority of the assets under management (€1,392.3 bn, or 76.74% of the overall AUM) was held by ETFs classified as article 6 compliant. Since the majority of ETFs in Europe track conventional (non-ESG-related) indices, one would expect that the majority of assets are held in these products. ETFs compliant to article 8 of the SFDR held €400.1 bn, or 22.06%, of the overall AUM, while ETFs compliant to article 9 of the SFDR held only €16.3 bn, or 0.90%, of the overall AUM. Not all ETFs in Europe are subject to the SFDR, as a low number of products are not domiciled or distributed in the EU. These ETFs account for €5.5 bn, or 0.30%, of the overall AUM.
Even as this ranking is expected to change in the future, changes may take longer than one would expect, since it will take a lot of time before investors change their portfolio benchmarks from conventional to ESG-related and change the respective ETFs in their portfolios accordingly.
Graph 1: Market Share of Assets Under Management in the European ETF Industry by SFDR Article (June 30, 2024)
Source: LSEG Lipper
Estimated Net Flows by SFDR Article
Having the structure of the European ETF industry with regard to the split of the AUM by SFDR article in mind, it is no surprise that fund flow pattern over the course of the first half of 2024 shows a somewhat similar picture.
While article 6 (+€89.2 bn) and article 8 (+€16.7 bn) ETFs enjoyed overall inflows for the first six months of 2024, article 9 ETFs (-€1.4 bn) and non-reporting ETFs (-€0.6 bn) faced overall outflows over the same time period.
Given the fact that the European ETF industry enjoyed healthy inflows in every month of the year 2024 so far, the overall outflows from article 9 and non-reporting ETFs are somewhat surprising. That said, article 9 ETFs did not experience outflows in every month of 2024 so far, as this category posted estimated net inflows over the course of February and June.
Graph 2: Estimated Monthly Net Flows in the European ETF Industry by SFDR Article – January 1 – June 30, 2024 (in bn EUR)
Source: LSEG Lipper
From my point of view, the outflows from article 9 ETFs are mainly caused by the current underperformance of sectors and stocks related to sustainable investment themes, such as renewable energy, hydrogen, cleantech, electric vehicles, batteries, etc. This means, I would expect the flows into article 9 ETFs to pick-up once ESG-related stocks and sectors start to outperform their conventional peers.
This article is for information purposes only and does not constitute any investment advice.
The views expressed are the views of the author, not necessarily those of Lipper or LSEG.
