2022 was a remarkable year for investors around the globe. Some may call it a year for the history books. Major economic and geopolitical headwinds resulted in falling equity and fixed income markets around the globe.
In the aftermath of the COVID-19 pandemic, investors were concerned about the still-disrupted delivery chains and increasing inflation rates when the year 2022 started. All these concerns became overshadowed by Russia’s invasion of Ukraine since this meant that investors had to rewrite their playbook for the year. The war in Ukraine led to increasing prices for energy and food, which fueled the already increasing inflation rates. As a result, central banks around the globe had to act even harder to fight inflation.
Within this environment it was somewhat surprising that the European ETF industry enjoyed inflows over the course of 2022. That said, these inflows repeated a trend which we have witnessed over the course of other rough market periods.
Assets Under Management
Despite these tough market conditions, 2022 marked the twenty-third consecutive year with inflows into ETFs, which means that ETFs have never witnessed outflows on an annual basis since their inception in Europe in 2000. The negative performance of the underlying markets led, despite the estimated net inflows, to decreasing assets under management (from €1,330.5 bn as of December 31, 2021, to €1,242.2 bn at the end of December 2022). The decrease of €88.3 bn for 2022 was driven by the performance of the underlying markets (-€168.5 bn), while estimated net sales contributed €80.2 bn to the assets under management in the European ETF industry.
Graph 1: Assets Under Management in the European ETF Industry, January 1, 2000 – December 31, 2022
Source: Refinitiv Lipper
It was not surprising equity ETFs (€884.1 bn) held the majority of assets, followed by bond ETFs (€304.6 bn), commodities ETFs (€32.2 bn), money market ETFs (€12.5 bn), alternative UCITS ETFs (€5.7 bn), mixed-assets ETFs (€3.1 bn), and “other” ETFs (€0.1 bn).
Graph 2: Market Share, Assets Under Management in the European ETF Segment by Asset Type, December 31, 2022
Source: Refinitiv Lipper
ETF Flows in Europe Under a Magnifier
After the record inflows of the year 2021 (+€161.0 bn), the European ETF industry enjoyed estimated net inflows of €80.2 bn over the course of 2022 despite the rough market conditions. In fact, the estimated inflows for 2022 were the fifth highest yearly inflows on record for the European ETF industry. In addition to this, it is noteworthy that the flows for 2022 were above the rolling one-year average (€48.4 bn).
Graph 3: Estimated Net Sales in ETFs January 2000 – December 2022 (Euro Millions)
Source: Refinitiv Lipper
The inflows in the European ETF industry over the course of the year 2022 were driven by equity ETFs (+€51.1bn), followed by bond ETFs (+€30.8 bn), money market ETFs (+€2.1 bn), mixed-assets ETFs (+€0.4 bn), and “other” ETFs (+€0.01 bn). Meanwhile, alternative UCITS ETFs (-€0.6 bn), and commodities ETFs (-€3.6 bn) were the only asset types with estimated outflows for the year.
Graph 4: Estimated Net Sales in ETFs by Asset Type January 1 – December 31, 2022 (Euro Millions)
Source: Refinitiv Lipper
In more detail, the European ETF industry enjoyed inflows for 10 months of the year, while two months posted estimated net outflows. January 2022 was the month with the highest inflows into ETFs in Europe (+€25.6 bn), while September posted the highest outflows (-€3.8 bn). Taking into consideration that the war between Russia and Ukraine started at the end of February 2022, it is somewhat surprising that European investors did not start to sell bond and equity ETFs in February and March, since these type of products are considered as risky assets.
Graph 5: Estimated Net Sales in ETFs 2022 by Month (Euro Millions)
Source: Refinitiv Lipper
That said, the headline figures by asset type have overwritten the flow trends at the classification level since some Lipper Global Classifications showed outflows despite the generally positive fund flow trend for these two months.
ETF Flows by Asset Type
A closer view of the estimated monthly flows by asset type shows that equity ETFs build their position as best-selling asset type over the course of January, when the respective ETFs enjoyed estimated net inflows of €21.9 bn, which equals 85.55% of the overall inflows for the month. Conversely, August (-€3.2 bn) was the worst month with regard to estimated flows, for equity ETFs.
Bond ETFs witnessed the highest estimated inflows in November 2022 (+€8.4 bn), while September (-€2.9 bn) was the worst month for bond ETFs over the course of 2022. It seems to be noteworthy that September 2022 was the only month during which bond and equity ETFs (-€0.2 bn) faced estimated outflows.
Graph 6: Estimated Net Sales in ETFs 2022 by Month and Asset Type (Euro Millions)
Source: Refinitiv Lipper
More generally, bond and mixed-assets ETFs were the asset types with the most months (10) with estimated inflows over the course of 2022, while commodities ETFs had the lowest number of months (three) with inflows. That said, it is somewhat surprising that commodities ETFs were sold by European investors over the course of 2022, since the prices for a number of commodities, especially oil and gas, were up over the course of the year.
The flow trends described above can even better be observed in cumulative flow charts, which show that especially the second half of 2022 was a rough ride for inflows into European ETFs. Graph 8 shows strong inflows into equity ETFs over the course of the first two quarters of 2022, as well as the outflows over the third quarter and the change of tides in the fourth quarter when equity ETFs again enjoyed healthy inflows. Opposite to this, bond ETFs enjoyed inflows over all four quarters of 2022, with only two months of outflows (June and September).
Graph 7: Cumulated Estimated Monthly Net Flows for Bond, Commodities, and Equity ETFs, January 1 – December 31, 2022 (Euro Millions)
Source: Refinitiv Lipper
Given their assets under management, it was not surprising that other asset types had, with the exception of money market ETFs, rather shy inflows and outflows over the course of 2022. The flow pattern for money market ETFs was somewhat surprising since a negative and volatile market environment would normally lead to inflows in money market products, as these products are seen as so-called safe-haven products. That said, European investors may have been reluctant to invest in money market ETFs as they feared the impact of increasing inflation rates.
Graph 8: Monthly Estimated Net Sales by Asset Type, January 1 – December 31, 2022 (Euro Millions)
Source: Refinitiv Lipper
By looking on these numbers one needs to bear in mind that the flows in money market products are impacted by a combination of asset allocation decisions of portfolio managers and corporate actions such as cash dividends or cash payments since money market funds are also used by corporations as replacements for cash accounts.
Assets Under Management by ETF Domicile
As ETFs are true cross-border products with sales registrations in multiple countries, it is not surprising that the international fund hubs in Europe (Luxembourg and Ireland) are the fund domiciles of choice for the ETF promoters active in Europe. At a closer look, the ETF promoters in Europe used 13 countries as domiciles for their products. Ireland (€854.6 bn) is the largest ETF domicile by assets under management in Europe. It is followed by Luxembourg (€258.0 bn), Germany (€51.8 bn), Switzerland (€35.6 bn), France (€34.6 bn), Sweden (€4.7 bn), Netherlands (€1.4 bn), Turkey (€0.7 bn), Finland (€0.4 bn), Spain (€0.2 bn), Norway (€0.2 bn), Greece (€0.02 bn), and Hungary (€0.01 bn).
Switzerland has overtaken France on the list of the largest ETF domiciles. One reason for this can be seen in the fact that ETF promoters domiciled in France have started to relocate some of their ETFs from France to Ireland, to take profit from the tax treatment agreements between Ireland and the US, which makes it easier for them to meet the performance goals of the respective ETFs.
The reason for the large variety of ETF domiciles can be seen in the effort of some ETF promoters to cater to specific investors in specific countries. To do so, they have to take local regulations—especially with regard to taxes—into account, which may force them to launch an ETF in a specific domicile. Additionally, some ETF promoters in Europe only cater to single markets and have their ETFs domiciled in these countries.
Graph 9: European ETF Domiciles by Assets Under Management, December 31, 2022 (Euro Millions)
Source: Refinitiv Lipper
Given the fact that ETFs are real cross-border products which want to take full advantage of the UCITS passport that enables them to become registered for sales in multiple countries inside the EU, the dominance of Ireland and Luxembourg as ETF domiciles is not surprising. Especially as the local fund associations in these countries (Irish Funds and ALFI) are offering their members help for their international fund distribution efforts inside and outside of the EU. Nevertheless, the distribution of assets under management by fund domicile is another piece of evidence backing up the claim that assets under management in the European ETF industry are highly concentrated.
Graph 10: Market Shares of European ETF Domiciles by Assets Under Management, December 31, 2022
Source: Refinitiv Lipper
Assets Under Management by Lipper Global Classifications
In order to examine the European ETF industry in further detail, an analysis of the assets under management and flows by Lipper global classifications can reveal more details about the European ETF industry. Overall, the European ETF market was split into 165 different peer groups at the end of December 2022. The highest assets under management at the end of December 2022 were held by funds classified as Equity U.S. (€262.6 bn), followed by Equity Global (€179.0 bn), Equity Europe (€61.9 bn), Equity Emerging Markets Global (€56.9 bn), and Equity Eurozone (€44.6 bn). These five peer groups accounted for 48.71% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 60.32%.
This means that the assets under management in the European ETF industry are also highly concentrated with regard to the investment objectives of the products. In other words, this means that European investors are using ETFs as core holdings in their portfolios, as one could see from the names of the top classifications by assets under management.
The level of concentration of the assets under management by Lipper Global Classification is even higher when one looks beyond the 10-top peer groups, since only 21 of the 165 peer groups each accounted for more than 1% of assets under management. In total, these 21 Lipper Global Classifications accounted for €922.0 bn, or 74.22%, of the overall assets under management. These statistics mean that the concentration of the assets under management by Lipper Global Classification has further increased over the course of 2022. In addition, it was noteworthy that the rankings of the largest peer groups saw some movement in single positions over the past years caused by the market turmoil of the COVID-19 pandemic, the war in Ukraine, and the sharply increasing inflation rates around the globe. 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.
Graph 11: Ten-Top Lipper Global Classifications by Assets Under Management, December 31, 2022 (Euro Millions)
Source: Refinitiv Lipper
The peer groups on the other side of the table showed some peer groups in the European ETF market are quite low in assets and their constituents are at risk of being closed in the near future. They are obviously lacking investor interest and might, therefore, not be profitable for their respective ETF promoters.
Graph 12: Ten Smallest Lipper Global Classifications by Assets Under Management, December 31, 2022 (Euro Millions)
Source: Refinitiv Lipper
The size of a classification can guide investors to the peer groups which may have a high liquidity for the trading of the underlying ETFs, especially when those peer groups also witness high inflows. Nevertheless, investors need to check the liquidity of an ETF on a case-by-case basis, since liquidity can differ between ETFs and trading venues.
Fund Flows by Lipper Global Classifications
The net inflows of the 10 best-selling Lipper classifications accounted for €87.3 bn. With regard to the overall sales for 2022 and the structure of the European ETF segment by asset type, it was not surprising that equity funds (+€53.3 bn) dominated the table of the 10 best-selling peer groups by estimated net flows, while the peer group count was equal split between bond and equity peer groups. Equity Global (+€27.2 bn) was once again the best-selling Lipper global classification in the European ETF segment for the year 2022 overall. It was followed by Bond USD Government (+€18.3 bn) and Equity U.S. (+€12.2 bn).
These numbers showed the European ETF segment is also highly concentrated with regard to fund flows by sector. Generally speaking, one would expect the flows into ETFs to be concentrated since investors use these products not only to implement their long-term market views within their portfolios, they also use ETFs to execute short-term asset allocation decisions which are often driven by the general trends on the securities markets. Unlike actively managed funds, ETFs are designed for both purposes, therefore they can easily be used by all investors to meet their asset allocation targets.
Graph 13: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, 2022 (Euro Millions)
Source: Refinitiv Lipper
On the other side of the table, the 10 peer groups with the highest estimated net outflows for the year 2022 accounted for €8.4 bn of outflows. These outflows are significantly higher than the outflows for the 10 worst-selling classifications over the course of 2021. This flow pattern indicates that European investors have readjusted their portfolios to the changing market environment.
Assets Under Management by ETF Promoter
A closer look at assets under management by promoters in the European ETF industry also showed high concentration, with 22 of the 47 ETF promoters in Europe holding assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€572.9 bn)—accounted for 46.12% of the overall assets under management, far ahead of the number-two promoter—Amundi ETF (€166.0 bn)—and the number-three promoter—Xtrackers (€122.7 bn).
The list of the top three ETF promoters in Europe has changed since Amundi ETF has acquired Lyxor ETF and has become the new second largest ETF promoter in Europe. That said, Xtrackers has already unveiled plans to win the position as second largest ETF promoter back. This means that the race for assets will increase the competition between the leading ETF promoters in Europe further and needs to be carefully observed in the future.
Graph 14: Ten-Top ETF Promoters by Assets Under Management, December 31, 2022 (Euro Millions)
Source: Refinitiv Lipper
Fund Flows by Promoters
Since the European ETF market is highly concentrated, it was not surprising that eight of the 10 largest promoters by assets under management were among the 10-top selling ETF promoters for 2022. iShares was once again the best-selling ETF promoter in Europe for the year (+€44.0 bn), ahead of Amundi ETF (+€11.6 bn) and SPDR (+€5.3 bn).
Graph 15: Ten Best-Selling ETF Promoters, 2022 (Euro Millions)
Source: Refinitiv Lipper
The flows of the 10-top promoters accounted for estimated net inflows of €82.3 bn, or 102.39%, of the overall estimated net inflows in the European ETF industry. With regard to these numbers and the overall flow trend over the course of 2022, it was clear that some of the 47 promoters (12) faced net outflows (-€7.2 bn in total) over the course of 2022.
Replication Methodologies
Before the financial crisis occurred in 2008, the market share of different replication strategies (physical and synthetic) used by ETF promoters in Europe was nearly equal. This changed in the aftermath of the financial crisis as European investors realized that a swap or other derivatives used for synthetic replication have a counterparty risk and, therefore, avoided ETFs which were using synthetic replication where possible.
This means in turn that physical replication (full or optimized replication) has become the superior replication methodology in Europe. Therefore, it is no surprise that ETFs using physical replication hold the vast majority (86.90%) of assets under management in the European ETF industry.
Graph 16: Market Share of Replication Methodologies by Assets Under Management
Source: Refinitiv Lipper
From my point of view, this trend will continue, even as structure terms of the swaps and other derivatives used for synthetic replication have been changed to minimize the counterparty within the respective products. That said, one needs to bear in mind that some asset classes (such as blended commodities indices, etc.) can’t be replicated with physical replication, as the respective assets are not eligible for UCITS products.
An Analysis of the Total Expense Ratios (TER)
As the European ETF industry is highly competitive one would expect that the total expense ratios in the European ETF segment tend to fall over time, since a low management fee is seen as a competitive advantage if it comes to like-for-like products.
Therefore, it is no surprise that we see a somewhat respective pattern over the course of the years 2018-2022 for all asset types with the exception of alternative UCITS and “other” ETFs. That said, since alternative UCITS and “other” ETFs are not like-for-like products one would expect that ETF promoters will separate themselves from the competition in this segment. This would allow them to charge on average higher fees.
In addition, it seems to be somewhat surprising that the average TER for bond and equity ETFs is relatively high, since some of these products are charging their customers a management fee of less than 10 basis points (bps). That said, one needs also to bear in mind that ETF promoters in Europe have launched a number of niche products which are investing in a specific market segment and/or are driven by a specific investment theme. These products are by nature not like-for-like products and enable the respective promoters to charge higher fees.
Graph 17: Total Expense Ratios by Asset Type 2018-2022 (in %)
Source: Refinitiv Lipper
ETF Launches and Closures
There were 3.478 products listed in the Lipper database at the end of December 2022. 1.856 of the products were so-called primary share classes which represent the ETF portfolio, while 1.622 were so-called convenience share classes—for example, sub-share classes of an ETF portfolio which have an additional feature compared to the primary share class such as a denomination in a different currency or a currency hedge, etc.
Graph 18: Number of ETF Launches in Europe – All Share Classes (January 1, 2000 – December 31, 2022)
Source: Refinitiv Lipper
Graph 18 depicts that the trend to launch a large number of convenience share classes has started in 2015. This year marked the year when the European ETF industry enjoyed for the first time inflows of more than 70 bn EUR which can be seen as a sign that the launch of convenience share classes met the demand of the investors in Europe and therefore fostered the growth of the European ETF industry in the following years.
Since the primary share class does represent the respective ETF, the following analysis is based on primaries only.
The vast majority of the ETFs in Europe are equity ETFs (1,295), followed by bond ETFs (429), commodities ETFs (52), alternative UCITS ETFs (51), mixed-assets ETFs (17), money market ETFs (11), and “other” ETFs (1).
Graph 19: Market Share of ETFs (Primary Share Classes) by Asset Type (December 31, 2022)
Source: Refinitiv Lipper
Since the classification of fund products in Europe by the Sustainable Finance Disclosure Regulation (SFDR) has become a subject of change after the release of the regulatory technical standards (RTS) in the fourth quarter 2022, one might be curious if there are any ETFs left under article 9 of SFDR.
That said, the majority of ETFs in the European ETF industry (1,275) were classified under article 6, while 501 ETFs were classified under article 8, and 62 under article 9 of the SFDR. The remaining 18 ETFs had no classification under SFDR, which was to be expected since this report covers all ETFs in Europe and ETFs which are not registered for sale in the EU won’t need to comply with the SFDR.
By looking at these numbers, one needs to bear in mind that the number of ETFs which have been classified as article 9 compliant products was much higher prior to the release of the RTS, since the ETF promoters had to reclassify a large number of ETFs as the RTS presented much stricter sustainability criteria to which funds and ETFs have to comply to be assigned as article 8 or 9 compliant products.
Graph 20: Market Share of ETFs (Primary Share Classes) by SFDR (December 31, 2022)
Source: Refinitiv Lipper
ETF Launches and Closures Over the Course of 2022
Since 2022 was another successful year for the European ETF industry, it was not surprising that the overall number of ETFs available to European investors was rising over the course of 2022.
In more detail, European ETF promoters launched 374 new products (all share classes) over the course of 2022, while 41 ETFs were merged or liquidated. 184 of the 374 new products were primary share classes, while the other 190 were convenience share classes. Conversely, 29 primary share classes and 12 convenience share classes have been closed over the course of 2022.
To use the same methodology for the overall number of ETFs, the following analysis is based on primary share classes only.
The majority of these ETF launches were equity ETFs (150), followed by bond ETFs (33), while one new ETF was an alternative UCITS ETF.
Graph 21: ETF Launches 2022 by Product Type
Source: Refinitiv Lipper
With regards to classifications by SFDR, only 19 of the new launched ETFs were classified as article 9 compliant, while the vast majority of the ETFs launched over the course of 2022 (116) were classified as compliant to article 8 of the SFDR.
The newly launched ETFs gathered (+€11.9 bn) over the course of 2022 and accounted for €12.8 bn in assets under management at the end of December 2022. This indicates that the new ETFs met the demand of the investors in Europe, since the new launched products accounted for 14.82% of the overall inflows into ETFs over the course of 2022.
Graph 22: Estimate Net Flows in ETFs Launched in 2022 (Euro Millions)
Source: Refinitiv Lipper
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 Refinitiv Lipper or LSEG.
