The European ETF industry enjoyed inflows over the course of September 2023. These inflows occurred in a further unstable market environment over the course of the month in which some asset classes nevertheless showed positive results while others performed negatively. The market sentiment was still driven by hopes that central banks—especially the U.S. Federal Reserve—may have reached the last phase of its fight against high and further increasing inflation rates and may, therefore, start to keep interest rates at least stable quite soon. Some investors already think there might be room for decreasing interest rates later this year which might be reflected by the estimated inflows in bond ETFs. Nevertheless, these estimates are under scrutiny since the Fed stated after its September meeting a hawkish view, as the rate outlook still includes one more rate move this year and fewer rate cuts in 2024. In addition, there are still some concerns about geopolitical tensions and the continuing normalization of disrupted delivery chains, as well as the continued possibility of recession in the U.S. and other major economies around the globe. These fears are raised by inverted yield curves, which are seen as an early indicator for a possible recession.
It is noteworthy that market participants are already looking at the possibility of government shutdown in the U.S. in November.
Assets Under Management
The performance of the underlying markets led, in combination with estimated net inflows, to increasing assets under management (from €1,242.5 bn as of December 31, 2022, to €1,430.8 bn at the end of September 2023). At a closer look, the increase in assets under management of €188.3 bn for the year 2023 so far was driven by the estimated net inflows (+€105.2 bn), while the performance of the underlying markets contributed (+€83.0 bn) to the increase in assets under management.
Graph 1 Assets Under Management in the European ETF Segment by Asset Type, January 1, 2000 – September 30, 2023 (Euro Millions)
Source: LSEG Lipper
As for the overall structure of the European ETF industry, it was not surprising equity funds (€1,023.3 bn) held the majority of assets, followed by bond funds (€345.1 bn), commodities products (€33.1 bn), money market products (€20.4 bn), alternative UCITS products (€5.3 bn), and mixed-assets funds (€3.7 bn).
Graph 2: Market Share, Assets Under Management in the European ETF Segment by Asset Type, September 30, 2023
Source: LSEG Lipper
ETF Flows by Asset Type
The European ETF industry enjoyed estimated net inflows (+€105.2 bn) over the course of the first nine months of 2023. These flows were way above the annual average of €51.1 bn.
Graph 3: Estimated Net Sales by Asset Type, January 1, 2000 – September 30, 2023 (Euro Millions)
Source: LSEG Lipper
Even as former research reports indicated that there is no January effect with regard to the fund flow trends in Europe, January 2023 (+€18.9 bn) was the strongest month for estimated net inflows into ETFs in Europe for the year so far, it was followed by July (+€15.8 bn) and March (+€12.9 bn).
Graph 4: Monthly Estimated Net Sales by Asset Type, January 1 – September 30, 2023 (Euro Millions)
Source: LSEG Lipper
Given the current market environment it was not surprising that inflows in the European ETF industry for the first nine month of 2023 were driven by equity ETFs (+€56.7 bn), followed by bond ETFs (+€41.1 bn), money market ETFs (+€6.7 bn), commodities ETFs (+€0.9 bn), and mixed-assets ETFs (+€0.5 bn). On the other side of the table, alternatives ETFs (-€0.6 bn) were the only asset type which faced outflows over the first three quarters of the year.
Graph 5: Estimated Net Sales by Asset Type, January 1 – September 30, 2023 (Euro Millions)
Source: LSEG Lipper
As to be expected, the fund flow trends of the three major asset types (bonds, equities, and commodities) in the European ETF industry followed somewhat the overall fund-flows picture. That said, it was surprising to see that bond and equities ETFs had the same level of inflows over the course of January and continued to follow the same growth path until July. As graph 6 shows, the inflows into bond ETFs slowed down in August and September, while equity ETFs gather inflows at the same pace as in the month before.
Even as commodities are considered as one of the major asset types in the European ETF industry, the flows into these products are rather shy.
Graph 6: Monthly and Cumulative Estimated Net Sales by Asset Type, January 1 – September 30, 2023 (Euro Millions)
Source: LSEG Lipper
The flows for the other asset types over the course of the first nine months of 2023 show a rather mixed picture, with money market products dominating the flows compared to mixed-assets and alternatives ETFs. It is a bit surprising to see that the flows into money market ETFs are not higher, given the inverted yield curve in the Eurozone and the other major economies.
Graph 7: Monthly and Cumulative Estimated Net Sales by Asset Type, January 1 – September 30, 2023 (Euro
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 September 2023, the European ETF market was split into 166 different peer groups. The highest assets under management at the end of September were held by funds classified as Equity U.S. (€315.8 bn), followed by Equity Global (€221.8 bn), Equity Europe (€68.8 bn), Equity Emerging Markets Global (€68.3 bn), and Equity Eurozone (€49.1 bn). These five peer groups accounted for 50.59% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 62.56%.
Overall, 18 of the 166 peer groups each accounted for more than 1% of assets under management. In total, these 18 peer groups accounted for €1,044.4 bn, or 72.99%, 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. Nevertheless, these numbers showed assets under management by Lipper global classifications continued to be highly concentrated in the European ETF industry.
Graph 8: Ten-Top Lipper Global Classifications by Assets Under Management, September 30, 2023 (Euro Millions)
Source: LSEG Lipper
The peer groups on the other side of the table showed some funds in the European ETF market are quite low in assets and their constituents risk being closed in the near future. They are obviously lacking investor interest and might, therefore, not be profitable for their respective fund promoters (Please read our report: “Is there a consolidation ahead in the European ETF industry?” for more details on this topic).
Graph 9: Ten Smallest Lipper Global Classifications by Assets Under Management, September 30, 2023 (Euro Millions)
Source: LSEG Lipper
ETF Flows by Lipper Global Classifications
The net inflows of the 10 best-selling Lipper classifications over the course of the first nine months of 2023 accounted for €83.0 bn. In line with the overall sales trend for the first three quarters of 2023, equity peer groups (+€47.7 bn) gathered the majority of flows by asset type on the table of the 10 best-selling peer groups by estimated net inflows. Nevertheless, bond classifications dominated the peer group count (six), while there were only three equity peer groups on the table. Given the overall fund flow trend in the European ETF industry, it was not surprising that Equity Global (+€23.9 bn) was the best-selling Lipper global classification over the course of the first nine months of 2023. It was followed by Equity U.S. (+€13.1 bn) and Equity Emerging Markets Global (+€10.7 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 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 10: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, June 2023 (Euro Millions)
Source: LSEG Lipper
On the other side of the table, the 10 peer groups with the highest estimated net outflows for the first three quarters of 2023 accounted for €10.75 bn in outflows.
Equity Sector Financials (-€1.8 bn) was the Lipper Global Classification with the highest outflows for the first nine months of 2023. The category was bettered by Bond Emerging Markets Global in Hard Currencies (-€1.3 bn) and Bond EUR Inflation Linked (-€1.2 bn).
A Closer Look AT ETF Flows in the Equity Global Classification
Global equity products are generally seen as retail products since they can deliver a lot of value for (retail) investors who don’t want to look after their asset allocation on country/region and sector/industry levels. That’s because this task is done by index methodology. But given the level of inflows in the Lipper Global classification Equity Global, it seems like institutional investors also want to take profits from the convenience of these products.
A more detailed view of the actual fund flows over the course of first nine months of 2023 on a product level shows that the first four spots are taken by plain vanilla equity global products, while the first ESG-related product can be found in fifth place. The sixth place on the list is held by a semi-active/research enhanced product while, with exception of the ninth place (a PAB-SRI product), all other products on the 10 top list are plain vanilla global equity ETFs, which are using different indices as benchmarks.
Graph 11: The 15 Best-Selling Global Equity ETFs – 01.01. 30.09.2023 (in million EUR)
Source: LSEG Lipper
The more interesting part of the underlying fund flow trends can be found on the other side of the table, since European ETF investors seem to sell global equity ETFs which have implemented so-called factors such as momentum, size, and minimum volatility in their index construction process. That said, it is noteworthy that there are also some ESG-related ETFs, such as gender equal or socially responsible approaches, on the list of the global equities ETFs with the highest outflows for 2023 so far.
These findings mean that European investors may sell themed or “smart-beta” global equity ETFs and buy plain vanilla products. Even as we don’t know if this is really the case, since one can’t see if the money from product type is moving into another, this is a quite interesting observation. That is because this may mean that investors want to profit from the general market trends rather than betting that any factor or theme will outperform the general market.
Assets Under Management by Promoter
A closer look at assets under management by promoters in the European ETF industry also showed high concentration, with only 24 of the 54 ETF promoters in Europe holding assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€652.2 bn)—accounted for 45.58% of the overall assets under management, far ahead of the number-two promoter—Amundi ETF (€190.7 bn)—and the number-three promoter—Xtrackers (€147.2 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 12: Ten-Top ETF Promoters by Assets Under Management, September 30, 2023 (Euro Millions)
Source: LSEG Lipper
The 10-top promoters accounted for 93.52% of the overall assets under management in the European ETF industry. This meant, in turn, the other 44 fund promoters registering at least one ETF for sale in Europe accounted for only 6.48% of the overall assets under management.
ETF Flows by Promoter
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 the first nine months of 2023. iShares was the best-selling ETF promoter in Europe for the first three quarters of 2023 (+€45.9 bn), ahead of Xtrackers (+€15.9 bn) and Vanguard (+€12.8 bn).
Graph 12: Ten Best-Selling ETF Promoters, January 1 – September 30, 2023 (Euro Millions)
Source: LSEG Lipper
The flows of the 10-top promoters accounted for estimated net inflows of €100.5 bn. As for the overall flow trend in 2023 so far, it was clear that some of the 54 promoters (15) faced net outflows (-€2.6 bn in total) over the course of the month. That said, it was a surprise to witness UBS ETF, the fifth largest ETF promoter in Europe, at the bottom of the table, since all other major ETF promoter in Europe enjoyed inflows. A possible reason for the outflows from UBS ETFs might be asset allocation decisions within UBS Wealth Management, since UBS ETFs are heavily used by the private banking and wealth management business of UBS Bank.
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.
