General Overview
It’s fair to say that 2023 was a challenging year for portfolio managers around the globe since the markets were driven by a number of different factors and unpredictable incidents. Each of these could have caused a major market downturn on their own. First of all, there were a lot of geopolitical tensions around the globe beside the still ongoing war in Ukraine, which showed that democratic states might be more vulnerable than one may think. The concerns of investors, especially in Europe, increased towards the end of 2023 since the actions taken by the Houthi rebels in the Red Sea have the power to disrupt the still vulnerable delivery chains in Europe and other parts of the world.
Also, there were economic factors which burdened the expectations of investors, such as China’s failure to meet the growth expectations of investors when its economy was reopened after the end of the country’s zero-COVID strategy. Talking about China, the credit crisis in the Chinese real estate sector later in the year was another factor that could have caused a market downturn if it wasn’t handled well by the Chinese government. Nevertheless, investors are still cautious about investments in China.
After the meltdown in the bond segment during the interest hiking cycle over the course of 2022, investors hoped that the measures taken by central banks would bring down inflation and lead to falling interest rates. This assumption went against the hawkish statements of central banks around the globe for the first 10 months of 2023. The relatively high interest rates raised fears that some major economies such as the U.S. would face a hard landing. In addition to this, some investors might have recalled bad memories when the Silicon Valley Bank and two other regional banks were closed in early March 2023. These feelings might have become worse when Credit Suisse struggled later in the month and was finally taken over by UBS by governmental order.
Nevertheless, investors hope 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. With regard to this, 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 were 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 the inverted yield curves might be another short-term challenge for the bond markets.
On the other hand, the spectacular performance of the so-called Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) drove the U.S. markets up. The stellar performance of these stocks might have reminded some investors of the performance of some stocks before the burst of the so-called “dot.com bubble.” As a result, many investors might have been caught between fear and greed when looking at the U.S. equity markets.
That said, some major equity indices reach new all-time high values at the end of year 2023 despite all the headwinds over the course of the year.
Within this market environment, the promoters of ETFs (+$870.1 bn) enjoyed overall inflows, while the promoters of structured notes (-$13.3 bn) faced outflows over the course of the year 2023.
Table 1: General Overview on Global Assets Under Management and Estimated Fund Flows by Regions and Major ETF Domiciles (December 31, 2023)
Source: LSEG Lipper
Assets Under Management
Assets under management in the global ETF industry increased from $9,232.0 bn at the end of December 2022 to $11,118.1 bn at the end of December 2023. The majority of these assets ($8,619.8 bn) were held in equity ETFs. This category was followed by bond ETFs ($2,061.8 bn), commodities ETFs ($179.4 bn), ”other” ETFs ($87.7 bn), alternatives ETFs ($74.8 bn), money market ETFs (€56.4 bn), mixed-assets ETFs ($38.1 bn), and real estate ETFs (€0.02 bn).
Graph 1: Market Share Assets Under Management in the Global ETF Industry by Asset Type – December 31, 2023
Source: LSEG Lipper
Since this report covers a limited number of ETNs and ETCs, the so-called “structured notes” alongside ETFs, it is important to show the market share of assets under management of these products in comparison to ETFs to indicate the relevance and possible impact of these products for this study.
While ETFs held $10,913.3 bn, or 98.16%, of the overall assets under management, the structured notes covered in this report held $204.7 bn, or 1.84%, of the overall assets under management at the end of December 2023.
Graph 2: Market Share Assets Under Management in the Global ETF Industry by Product Type – December 31, 2023
Source: LSEG Lipper
Since ETFs are product wrappers which are used for passive index tracking products and active/semi-active strategies, it is important to shed a light on these two different product categories. Market observers expect more growth in the segment of active/semi-active products in the future since an increasing number of active managers start to launch ETFs not linked to an index. It is expected that this trend will continue after the patent on ETF share classes held by Vanguard expired in April 2023.
Nevertheless, it is no surprise that index tracking products held the vast majority of the overall assets under management in the global ETF industry ($10,458.7 bn or 94.07%), while ETFs which aim to outperform an index or are not linked to an index at all held $659.3 bn, or 5.93%, of the overall assets under management at the end of December 2023.
Graph 3: Market Share Assets Under Management in the Global ETF Industry by Management Approach – December 31, 2023
Source: LSEG Lipper
Assets Under Management Factor-Based ETFs
Since products which follow a factor-based strategy—the so-called smart beta products—can be found under both product types, it makes sense to highlight the high overall market share of factor-based products. Overall, factor-based products held assets under management of $2,320.6 bn at the end of December, which means in turn these products had an overall market share of 20.87%. The high percentage of the assets under management in factor-based ETFs shows that these products, which have been seen as marketing driven product launches in the past, are kind of mainstream investments these days.
Graph 4: Market Share Assets Under Management in the Global ETF Industry Factor-Based ETFs vs Conventional ETFs – December 31, 2023
Source: LSEG Lipper
It is actually no surprise that investors around the globe use factor-based ETFs within their portfolios since these products now offer access to broad range of factors, which have been proven that they can be exploited to deliver additional returns for investors. Nevertheless, the potential outperformance of a given factor is often depending on the right timing of the investment, since single factors do not deliver a consistent outperformance. With regard to this it is no surprise that the global ETF industry developed products which use multiple factors. These products shall be easier to use for investors since the usage of multiple factors shall remove the need for market timing.
The graph below shows the variety of factor strategies which are available to investors.
As multifactor ETFs are convenient products, it is no surprise that these products held the highest assets under management in the segment of factor-based ETFs ($1,107.8 bn), they are followed by ETFs using dividends as selection factor ($393.2 bn), ETFs using the size factor ($205.6 bn), value factor ETFs ($197.2 bn), and ETFs using the growth factor ($160.9 bn).
Graph 5: Market Share Assets Under Management of Single Factors within the Factor-based ETF Universe – December 31, 2023
Source: LSEG Lipper
Assets Under Management ESG-Related ETFs
Since sustainable investing is one of the major topics for investors around the globe, it is no surprise that that the global ETF industry offers sustainable products. That said, the products available use different strategies and sustainable investment credentials. With regard to this, it is noteworthy that not all ETFs which have implemented some kind of sustainable investment credentials can be seen as sustainable or ESG products. Nevertheless, this statistic marks all ETFs which state use of at least one ESG-related credential to determine the constituents of its index as ESG-related, while ETFs which do not use any sustainable investment credentials are marked as conventional ETFs.
Given the fact that most portfolios are still benchmarked against conventional indices, it is no surprise that conventional ETFs ($10,529.2 bn) held the vast majority of the assets under management in the global ETF industry, while their ESG-related peers held $588.9 bn at the end of December 2023.
Graph 6: Market Share Assets Under Management in the Global ETF Industry Factor-based ETFs vs Conventional ETFs – December 31, 2023
Source: LSEG Lipper
Given the overall market structure it is no surprise that equity ETFs ($447.7 bn) held the highest assets under management in the segment of ESG-related ETFs. They were followed by bond ETFs ($109.1 bn), “other” ETFs ($26.5 bn), commodities ETFs ($2.6 bn), alternatives ETFs ($1.9 bn), mixed-assets ETFs ($0.6 bn), and money market ETFs ($0.4 bn).
Graph 7: Market Share Assets Under Management of ESG-related ETFs by Asset Type – December 31, 2023
Source: LSEG Lipper
Assets Under Management by Region
ETFs domiciled in North America ($8,447.3 bn) held the highest assets under management in the global ETF industry at the end of December 2023. They were followed by ETFs domiciled in Europe ($1,794.6 bn), ETFs domiciled in the Asia Pacific region ($964.6 bn), ETFs domiciled in Middle and South America ($18.5 bn), and ETFs domiciled in Africa ($7.9 bn).
Graph 8: Assets Under Management in the Global ETF Industry by Region – December 31, 2023 (in mn USD)
Source: LSEG Lipper
In more detail, the U.S. was the largest single country ETF domicile ($8,135.4 bn) at the end of December 2023, followed by Ireland ($1,245.0 bn), Japan ($533.8 bn), Luxembourg ($340.3 bn), and Canada ($311.9 bn). These five ETF domiciles account for assets under management of $10,575.4 bn, or 94.15%, of the overall assets under management in the global ETF industry.
Assets Under Management by Lipper Global Classification
Equity U.S. held by far the highest assets under management ($3,702.0 bn) of the 283 Lipper Global Classifications covered in this report. It was followed by Equity U.S. Small & Mid Cap ($742.3 bn), Equity Global ex-U.S. ($654.3 bn), Equity Japan ($562.6 bn), and Bond USD Medium Term ($384.2 bn).
Graph 9: The 20 Largest Lipper Global Classifications by Assets Under Management – December 31, 2023 (in mn USD)
Source: LSEG Lipper
A closer review of the assets under management by Lipper Global Classification shows that the 10 largest classifications held $7,620.6 bn, or 67.84%, of the overall assets under management of the global ETF industry, while the largest 20 classifications account for $8,912.3 bn, or 79.34%, of the overall assets under management at the end of December 2023.
Assets Under Management by Promoters
BlackRock (iShares) is the largest promoter of ETFs globally ($3,555.1 bn). It is followed by Vanguard ($2,522.3 bn), State Street Global Advisors (SPDR) ($1,303.2 bn), Invesco ($543.5 bn), and Charles Schwab Investment Management ($319.5 bn).
Graph 10: Assets Under Management of the 20 Largest ETF Promoters Globally – December 31, 2023 (in mn USD)
Source: LSEG Lipper
As graph 10 shows, the assets under management in the global ETF industry are even more highly concentrated at the promoter level than at the domicile or classification level.
The three top ETF promoters globally account for assets under management of $7,376.6 bn, or 65.67%, of the overall assets under management, while the 10 top promoters account for $9,223.8 bn, or 82.11%, of the overall assets under management and the 20 top promoters account for $10,070.2 bn, or 89.65%, of the assets under management held by ETFs globally.
Global ETF Flows
The global ETF industry enjoyed healthy overall inflows of $856.8 bn over the course of the year 2023.
As mentioned before, this report covers a limited number of structured notes alongside ETFs. It is important to split the overall estimated fund flows between these two product types to indicate the relevance and possible impact of structured notes for this study.
ETFs enjoyed estimated net inflows of $870.1 bn over the course of the year 2023, while structured notes faced outflows (-$13.3 bn) over the same time period.
Graph 11: Estimated Net Sales by Product Type, January 1, 2023 – December 31, 2023 (in mn USD)
Source: LSEG Lipper
As mentioned before, ETFs can be managed with different approaches. They may use a passive approach (index tracking) where the portfolio of the respective ETF is tied to an index, or an active/semi-active approach where the fund manager has the aim to outperform an index or is not linked to an index at all.
Index tracking products enjoyed the vast majority of the estimated net inflows (+$720.6 bn) over the course of the year 2023, while active/semi-active products enjoyed estimated net inflows of $136.2 bn over the same time period.
Graph 12: Estimated Net Sales by Management Approach, January 1, 2023 – December 31, 2023 (in mn USD)
Source: LSEG Lipper
Global ETF Flows in Factor-Based ETFs
Since products which follow a factor-based strategy held a high overall market share of the assets under management in the global ETF industry, it makes sense to review the estimated net flows for these products. Overall, factor-based products enjoyed inflows of $75.3 bn over the course of the year 2023. This means the market share of the fund flows (8.79%) for factor-based products is far below the market share of assets under management (20.87%).
Graph 13: Market Share Assets Under Management in the Global ETF Industry Factor-Based ETFs vs Conventional ETFs – January 1, 2023 – December 31, 2023 (in mn USD)
Source: LSEG Lipper
Multifactor ETFs were the best-selling factor within the segment of factor-based ETFs (+$33.7 bn), they are followed by ETFs using the quality factor (+$23.1 bn), ETFs using the size factor (+$17.9 bn), yield factor ETFs (+$10.3 bn), and ETFs using the growth factor (+$7.8 bn).
Graph 14: Market Share Assets Under Management of Single Factors within the Segment of Factor-Based ETFs – January 1, 2023 – December 31, 2023 (in mn USD)
Source: LSEG Lipper
Opposite to the general flow trend in the segment of factor-based ETFs, commodities strategies (-$0.7 bn), value factor ETFs (-$5.9 bn), and volatility factor ETFs (-$16.7 bn), faced outflows over the course of 2023.
Global ETF Flows in ESG-Related ETFs
Given the fact that sustainable investing is a hot topic in the global investment industry, it is somewhat surprising that ESG-related ETFs enjoyed only $50.3 bn in estimated net inflows over the course of the year 2023. Even as this sounds like a small number compared to the overall estimated net inflows into ETFs globally, the market share of ESG-related ETFs from the overall ETF flows (5.87%) is slightly higher than their market share of assets under management (5.307%).
Graph 15: Market Share Assets Under Management in the Global ETF Industry Factor-based ETFs vs Conventional ETFs – January 1, 2023 – December 31, 2023 (in mn USD)
Source: LSEG Lipper
With regard to this, the overall market structure and the general fund flow trend it is no surprise that equity ETFs (+$34.9 bn) enjoyed the highest estimated net inflows in the segment of ESG-related ETFs. They were followed by bond ETFs (+$18.6 bn), alternatives ETFs (+$0.5 bn), commodities ETFs (+$0.5 bn), money market ETFs (+$0.2 bn), and mixed-assets ETFs (+$0.01 bn). Meanwhile, “other” ETFs (-$4.5 bn) was the only asset type which faced outflows in the segment of ESG-related ETFs.
Graph 16: Market Share Assets Under Management of ESG-related ETFs by Asset Type – January 1, 2023 – December 31, 2023 (in mn USD)
Source: LSEG Lipper
Global ETF Flows by Region
By reviewing the estimated flows in the global ETF industry by fund domicile and the respective regions, one needs to bear in mind that some domiciles have specific advantages or disadvantages when it comes to ETF distribution. The U.S. is, for example, a single market and can take profit from the size of the overall market, while in Europe every market is or at least can be an ETF domicile, which means that the local markets are much smaller. That said, the EU countries have established a fund regulation (Undertakings in Collective Investments and Transferable Securities or UCITS) which enables the fund and ETF industry to cross list all products which are registered for sale in one EU country into another EU country. Since UCITS has become such a well-recognized regulation standard for mutual funds and ETFs, some countries in South and Middle America, as well in Asia, allow UCITS funds to be cross-listed and sold to local investors. It is fair to say that there is no other regulatory framework available that allows funds to be distributed in various countries. Other mutual recognition agreements, such as those between Hong Kong and China or Hong Kong and Taiwan, are only bilateral and have no global reach. This means that the estimated flows for European ETFs may also include flows from South and Middle America, as well as from Asia.
As to be expected, ETFs domiciled in North America (+$617.1 bn) enjoyed the highest estimated net inflows for the year 2023. They were followed by ETFs domiciled in Europe (+$159.7 bn), Asia Pacific (+$80.5 bn), and (south) Africa (+$0.3 bn). On the other side of the table, ETFs domiciled in South and Middle America (-$0.9 bn) faced estimated net outflows.
Graph 17: Estimated Net Sales by Region, January 1, 2023 – December 31, 2023 (in mn USD)
Source: LSEG Lipper
In more detail, the U.S. (+$585.7 bn) was the single fund domicile with the highest estimated net inflows for the year 2023. It was followed by Ireland (+$129.5 bn) and Luxembourg (+$31.6 bn).
Global ETF Flows by Asset Type
Given the overall market environment, it was not surprising that equity ETFs (+$526.5 bn) were the best-selling asset type for the year 2023. They were followed by bond ETFs (+$305.9 bn), money market ETFs (+$19.8 bn), alternatives ETFs (+$10.7 bn), “other” ETFs (+$3.3 bn), and real estate ETFs (+$0.003 bn). On the other side of the table, mixed-assets ETFs (-$1.0 bn) and commodities ETFs (-$8.4 bn) were the only two asset types facing outflows.
Graph 18: Estimated Net Sales by Asset Type, January 1, 2023 – December 31, 2023 (in mn USD)
Source: LSEG Lipper
The fact that investors around the globe bought bond ETFs might be seen as a sign that investors may anticipate a possible ending of the interest hiking cycle of central banks around the globe led by the U.S. Federal Reserve. Therefore, this positioning might be seen as a bet that inflation will fall further.
Global ETF Flows by Lipper Global Classifications
A closer look at the best- and worst-selling Lipper Global Classifications for the year 2023 shows that investors are in risk-on mode with regard to their risk appetite. This is because the table of the 10 best-selling Lipper Global Classifications is composed of five equity, four bond, and one alternatives classification. Equity U.S. (+$273.2 bn) was the best-selling classification for the year. The category was followed by Bond USD Government (+$71.2 bn), Bond USD Medium Term (+$52.9 bn), Equity US Small and Mid Cap (+$42.5 bn), and Bond USD Government Short Term (+$41.9 bn).
Graph 19: Ten Best- and Worst-Selling Lipper Global Classifications by Estimated Net Sales, January 1, 2023 – December 31, 2023 (in mn USD)
Source: LSEG Lipper
On the other side of the table, Bond USD Inflation Linked (-$18.9 bn) faced the highest outflows for 2023. It was bettered by Equity Sector Healthcare (-$11.9 bn), Alternative Equity Leveraged (-$7.7 bn), Equity Theme Natural Resources (-$7.6 bn), and Bond USD Short Term (-$6.9 bn).
More generally, the flow trends for the classifications with the highest estimated outflows may indicate that investors adjusting their portfolios to the current economic environment and are reducing short duration products within their portfolios.
An in-depth look at the 10 classifications with the highest inflows and outflows indicates that investors around the globe may expect that the central banks—especially the U.S. Federal Reserve—will end their tightening cycle soon and the inverted yield curves may normalize as a result. The outflows from Alternative Equity Leveraged stand somewhat against the overall risk-on mode but might be seen as a sign that investors are in risk-on mode but not willing to take additional risk factors like leverage in their portfolios.
Global ETF Flows by Promoters
BlackRock (+$189.7 bn) was the best-selling ETF promoter globally, ahead of Vanguard (+$186.0 bn), State Street Global Advisors (+$88.9 bn), JPMorgan (+41.1 bn), and Invesco (+37.3 bn).
Graph 20: Twenty Best-Selling ETF Promoters Globally, January 1, 2023 – December 31, 2023 (in mn USD)
Source: LSEG Lipper
Overall, the 20 best-selling ETF promoters account for estimated net inflows of $729.3 bn.
