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June 14, 2024

Friday Facts: European ETF Industry Review, May 2024

by Detlef Glow.

May 2024 was another month with healthy inflows for the European ETF industry.

These inflows occurred in a positive market environment. The positive investor sentiment was driven by some stronger than expected earnings for Q1 2024. Nevertheless, there were also some companies which didn’t meet the expectations of analysts and saw their stock prices declining respectively. These market reactions on lower-than-expected numbers showed how vulnerable the markets are. In addition, the geopolitical tensions in Middle East, especially the developments around the Red Sea, are seen as a risk for the general economic growth in Western countries since a number of shipping companies these days avoid the passage of the Suez channel. It is, therefore, to be expected that the prolonged delivery times will cause some tensions for the still vulnerable delivery chains.

Market sentiment was further driven by hopes that central banks will start to lower key interest rates. While the European Central Bank (ECB) is expected to be the first in line, it is still unclear if and when the U.S. Federal Reserve will start to lower the interest rates in the U.S. That said, the statements from the U.S. Fed over the first quarter of 2024 about a possible start of lowering interest rates might have caught some investors on the wrong foot, as the central bank indicated that it may start the lowering of interest rates later and with less steps in 2024 than some investors expected. These statements might have impacted the estimated net flows in bond and money market ETFs.

In addition, some investors may have also reviewed their expectations for bonds, as there is the risk that the inflation in the major economies might be more sticky than expected and central banks are held responsible to reach their inflation targets. Additionally, 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 a lack of growth in some economies and the 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 flows, to increasing assets under management (from €1,698.3 bn as of April 30, 2024, to €1,755.7 bn at the end of May). At a closer look, the increase in assets under management of €57.4 bn for May was driven by the performance of the underlying markets (+€33.2 bn), while the estimated net inflows contributed (+€25.1 bn) to the growth of the assets under management.

As for the overall structure of the European ETF industry, it was not surprising equity funds (€1,296.0 bn) held the majority of assets, followed by bond funds (€381.7 bn), commodities products (€36.5 bn), money market products (€31.7 bn), alternatives products (€6.7 bn), and mixed-assets funds (€3.2 bn).

Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, May 31, 2024

Source: LSEG Lipper

 

ETF Flows by Asset Type

The European ETF industry enjoyed estimated net inflows (+€25.1 bn). These flows were way above the rolling 12-month average (€15.1 bn).

The inflows in the European ETF industry for May were driven by equity ETFs (+€17.8 bn), followed by bond ETFs (+€5.2 bn), money market ETFs (+€1.4 bn), commodities ETFs (+€0.6 bn), alternatives ETFs (+€0.05 bn), and mixed-assets ETFs (+€0.03 bn).

Graph 2: Estimated Net Sales by Asset Type, May 2024 (Euro Millions)

European ETF Industry Review, May 2024

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 May 2024, the European ETF market was split into 167 different peer groups. The highest assets under management at the end of May were held by funds classified as Equity U.S. (€418.5 bn), followed by Equity Global (€295.6 bn), Equity Europe (€84.2 bn), Equity Emerging Markets Global (€77.1 bn), and Equity Eurozone (€63.3 bn). These five peer groups accounted for 53.47% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 64.99%.

Overall, 18 of the 167 peer groups each accounted for more than 1% of assets under management. In total, these 18 peer groups accounted for €1,316.8 bn, or 75.00%, 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 Largest Lipper Global Classifications by Assets Under Management, May 31, 2024 (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 4: Ten Smallest Lipper Global Classifications by Assets Under Management, May 31, 2024 (Euro Millions)

Source: LSEG Lipper

 

ETF Flows by Lipper Global Classifications

The net inflows of the 10 best-selling Lipper classifications accounted for €17.7 bn. In line with the overall sales trend for May, equity peer groups (+€14.7 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 Global (+€6.0 bn) was the best-selling Lipper global classification for May. It was followed by Equity U.S. (+€4.1 bn) and Money Market USD (+€1.2 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 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 5: Ten Best- and Worst-Lipper Global Classifications by Estimated Net Sales, May 2024 (Euro Millions)

European ETF Industry Review, May 2024

Source: LSEG Lipper

On the other side of the table, the 10 peer groups with the highest estimated net outflows for May accounted for €2.9 bn in outflows. These outflows were below the outflows for 10 peer groups with the highest outflows for April 2024 (€3.3 bn).

Equity Switzerland (-€0.8 bn) was the Lipper Global Classification with the highest outflows for the month. The category was bettered by Equity Germany (-€0.8 bn) and Bond EUR Corporates (-€0.4 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 28 of the 56 ETF promoters in Europe holding assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€782.9 bn)—accounted for 44.59% of the overall assets under management, far ahead of the number-two promoter—Amundi ETF (€226.3 bn)—and the number-three promoter—Xtrackers (€188.1 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: The 10 Largest ETF Promoters by Assets Under Management, May 31, 2024 (Euro Millions)

European ETF Industry Review, May 2024

Source: LSEG Lipper

The 10-top promoters accounted for 93.93% of the overall assets under management in the European ETF industry. This meant, in turn, the other 46 fund promoters registering at least one ETF for sale in Europe accounted for only 6.07% of the overall assets under management.

 

ETF 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 May. iShares was the best-selling ETF promoter in Europe for May (+€8.4 bn), ahead of Xtrackers (+€4.2 bn) and SPDR (+€3.0 bn).

Graph 7: Ten Best-Selling ETF Promoters, May 2024 (Euro Millions)

European ETF Industry Review, May 2024

Source: LSEG Lipper

The flows of the 10-top promoters accounted for estimated net inflows of €24.8 bn. As for the overall flow trend in May, it was clear that some of the 56 promoters (13) faced estimated net outflows (-€1.2 bn in total) over the course of the month.

 

Assets Under Management by ETFs

There were 3,775 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of May. Regarding the overall market pattern, it was not surprising assets under management at the ETF level were also highly concentrated. Only 385 of the 3,775 instruments held assets above €1.0 bn each. These products accounted for €1,260.9 bn, or 71.82%, of the overall assets in the European ETF industry. The 10 largest ETFs in Europe accounted for €294.1 bn, or 16.75%, 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: The Ten Largest ETFs by Assets Under Management, May 30, 2024 (Euro Millions)

Source: LSEG Lipper

 

ETF Flows on Share Class Level

A total of 1,483 of the 3,775 instruments analyzed in this report showed net inflows of more than €10,000 each for May, accounting for inflows of €45.5 bn. This meant the other 2,166 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, only 109 of the 1,609 ETFs posting net inflows enjoyed inflows of more than €100 m during May—for a total of €26.4 bn. The best-selling ETF for May was SPDR S&P 500 UCITS ETF Dist, which enjoyed estimated net inflows of €1.4 bn. It was followed by iShares Core S&P 500 UCITS ETF USD (Acc) (+€1.1 bn) and UBS LFS MSCI Japan UCITS ETF JPY A-acc (+€0.8 bn).

Graph 9: The 10 Best-Selling ETFs, May 2024 (Euro Millions)

European ETF Industry Review, May 2024

Source: LSEG Lipper

The flow pattern at the fund level indicated there was a lot of turnover and rotation during May, 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 €7.2 bn.

Given its size and the overall trend for net sales at the promoter level, it was surprising that only three of the 10 best-selling funds for May were promoted by iShares. These iShares ETFs accounted for estimated net inflows of €2.3 bn.

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.

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