The European ETF industry enjoyed healthy inflows over the first half of 2024. Opposite to mutual funds, ETFs had estimated net inflows in every month so far.
These inflows into ETFs occurred in a generally positive market environment. Nevertheless, equity markets looked somewhat vulnerable given the high valuations of the market leaders. With regard to this, it is not surprising that investors are nervous and reacting quite fast on any news that may impact the current market environment negatively.
This is not only true for economic news, as the geopolitical tensions in the 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) started to lower interest rates, 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 latest statements from the U.S. Fed on its expectations for the start of lowering interest rates might have caught some investors on the wrong foot since 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.
As a result, some investors may have 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.
Assets Under Management – Overview
From an ETF industry perspective, the performance of the underlying markets led, in combination with the estimated net flows, to increasing assets under management (from €1,563.5 bn as of December 31, 2023, to €1,814.2 bn, a new all-time high, at the end of June). At a closer look, the increase in assets under management of €250.7 bn for the year so far was driven by the performance of the underlying markets (+€146.7 bn), while the estimated net inflows contributed (+€104.0 bn) to the growth of assets under management.
Graph 1: Assets Under Management in the European ETF Industry, January 1, 2000 – June 30, 2024
Source: LSEG Lipper
As for the overall structure of the European ETF industry, it was not surprising equity funds (€1,347.3 bn) held the majority of assets, followed by bond funds (€385.3 bn), commodities products (€36.7 bn), money market products (€34.8 bn), alternatives products (€6.9 bn), and mixed-assets funds (€3.3 bn).
It is noteworthy that the overall assets under management in the European ETF industry (€1,814.2 bn) hit a new all-time high at the end of June 2024. With regard to this, it is no surprise that the assets under management for equity, bond, and money market ETFs marked also an all-time high at the end of the month.
Graph 2: Market Share, Assets Under Management in the European ETF Industry by Asset Type, June 30, 2024
Source: LSEG Lipper
ETF Flows by Asset Type
The European ETF industry enjoyed estimated net inflows (+€104.0 bn) over the course of the first six months of 2024. With regard to this, it is noteworthy that our model to estimate the fund flows for the full year points to estimated net inflows between €180.0 bn and €210.0 bn for 2024. This level of inflows would mark a new all-time high for the estimated net inflows in the European ETF industry.
The inflows in the European ETF industry for the first half of 2024 were driven by equity ETFs (+€78.2 bn), followed by bond ETFs (+€17.5 bn), money market ETFs (+€8.7 bn), and commodities ETFs (+€0.8 bn), while alternatives ETFs (-€0.5 bn), and mixed-assets ETFs (-€0.7 bn) faced estimated outflows.
Graph 3: Estimated Net Sales by Asset Type, January 1 – June 30, 2024 (Euro Millions)
Source: LSEG Lipper
Opposite to mutual funds, ETFs enjoyed inflows for every month of the year 2024 so far. This flow pattern is also true on an asset type level.
That said, the estimated net flows in ETFs are, as usual, concentrated in bond and equity products. While the estimated monthly flow pattern for bond ETFs is somewhat in-line with the pattern for mutual funds, the estimated monthly flow pattern for equity ETFs is quite different from the flow pattern for mutual, as equity ETFs enjoyed estimated inflows for every month of the year, while equity mutual funds faced outflows in several month of the year.
Graph 4: Monthly Estimated Net Sales in Equity and Bond ETFs, January 1 – June 30, 2024 (Euro Millions)
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 June 2024, the European ETF market was split into 168 different peer groups. The highest assets under management at the end of June were held by funds classified as Equity U.S. (€445.0 bn), followed by Equity Global (€311.3 bn), Equity Europe (€84.5 bn), Equity Emerging Markets Global (€81.7 bn), and Equity Eurozone (€61.8 bn). These five peer groups accounted for 54.25% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 65.70%.
Overall, 16 of the 168 peer groups each accounted for more than 1% of assets under management. In total, these 16 peer groups accounted for €1,335.3 bn, or 73.60%, 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 5: Ten Largest Lipper Global Classifications by Assets Under Management, June 30, 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 6: Ten Smallest Lipper Global Classifications by Assets Under Management, June 30, 2024 (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 half of 2024 accounted for €81.3 bn. In line with the overall sales trend for the year so far, equity peer groups (+€66.4 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 (+€27.6 bn) was the best-selling Lipper global classification for June. It was followed by Equity U.S. (+€24.7 bn) and Money Market EUR (+€4.7 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 7: Ten Best- and Worst-Lipper Global Classifications by Estimated Net Sales, January 1 – June 30, 2024 (Euro Millions)
Source: LSEG Lipper
On the other side of the table, the 10 peer groups with the highest estimated net outflows for June accounted for €7.5 bn in outflows.
Bond Emerging Markets Global in Local Currencies (-€1.6 bn) was the Lipper Global Classification with the highest outflows for the first six months of 2024. The category was bettered by Equity Canada (-€1.0 bn) and Bond EUR Corporates (-€0.8 bn).
European ETF Flow Trend Insights
A more detailed view of the league table of the Lipper classifications by estimated net flows shows that 65 of the 168 Lipper Global Classifications covered in this report show estimated inflows of more than €100.0 mn. Twenty-three of these classifications enjoyed inflows of more than €1.0 bn.
As mentioned before, ETFs classified as Equity Global (+€27.6 bn) and Equity U.S. (+€24.7 bn) dominated the estimated net flows in the European ETF industry over the course of the first six months of the year 2024. Since money market products normally play only a minor role in the European ETF industry, it was surprising that Money Market EUR (+€4.7 bn) and Money Market USD (+€4.2 bn) were the third and fifth best-selling Lipper classifications for the year so far. The Equity Sector Information Technology (+€4.6 bn) was the fourth best-selling Lipper classification over the course of H1 2024.
The inflows into Equity Japan (+€3.4 bn) might be a sign that Japanese blue chips are back on the agenda of European investors, especially after the NIKKEI 225 marked a new all-time high in February 2024. With regard to this, it is noteworthy that the vast majority of the estimated inflows into Equity Japan was in ETFs which are related to the MSCI Japan and not the NIKKEI 225. Nevertheless, relatively low inflows into Equity Japan are a sign that European investors do not chase returns.
Another market that might be back on the agenda of European investors is China, as Equity China (+€0.4 bn) and Bond CNY (+€0.3 bn) enjoyed inflows over the course of the year 2024 so far. In addition, we also witnessed shy inflows into Equity Greater China (+€0.01 bn) and Equity China Small & Mid Caps (+€0.001 bn). Even as these flows tent to be quite small, they show that there is some interest for all kind of Chinese or China-related securities.
In addition, it looks like European investors have rediscovered Europe as investment target since we witnessed inflows in a broad variety of Lipper classifications, ranging from Equity Eurozone (+€2.4 bn), and Equity Europe (+€0.7 bn) via Equity Switzerland (+€1.0 bn) to Equity UK Small & Mid Caps (+€0.5 bn), with the respective all shares and small & mid cap categories in between.
Since I have written only about equity classifications so far, this shows that European ETF investors are currently not focusing on bonds. That said, Bond EMU Government (+€3.1 bn) and Bond Global USD (+€2.9 bn) are on the table of the 10 best-selling Lipper classifications for H1 2024. In addition, European investors also bought Bond EMU Government Long Term (+€1.9 bn), Target Maturity Bond EUR 2020+ (+€1.5 bn), Bond USD Government (+€1.5 bn), and Bond USD Government Short Term (+€1.4 bn).
While buying USD bonds may mean that European investors want to take profit from the higher interest rates in the U.S. compared to the Eurozone, the transaction in EUR bond categories may be a sign that European investors might expect more interest rate cuts from the European Central Bank in the near future, as they sold Bond Emerging Markets in Local Currencies (-€1.6 bn), Bond EMU Government Short Term (-€0.5 bn), and Bond EUR Short Term (+€0.3 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 57 ETF promoters in Europe holding assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€806.1 bn)—accounted for 44.43% of the overall assets under management, far ahead of the number-two promoter—Amundi ETF (€234.3 bn)—and the number-three promoter—Xtrackers (€194.4 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 8: The 10 Largest ETF Promoters by Assets Under Management, June 30, 2024 (Euro Millions)
Source: LSEG Lipper
The 10-top promoters accounted for 93.96% of the overall assets under management in the European ETF industry. This meant, in turn, the other 47 fund promoters registering at least one ETF for sale in Europe accounted for only 6.04% 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 all 10 of the 10 largest promoters by assets under management were among the 10-top selling ETF promoters for the first half of 2024. iShares (+€35.8 bn) was the best-selling ETF promoter in Europe over the course of 2024 so far, ahead of Xtrackers (+€15.2 bn) and Vanguard (+€11.1 bn).
Graph 9: Ten Best-Selling ETF Promoters, January 1 – June 30, 2024 (Euro Millions)
Source: LSEG Lipper
The flows of the 10-top promoters accounted for estimated net inflows of €104.1 bn. As for the overall flow trend in 2024 so far, it was clear that some of the 57 promoters (19) faced estimated net outflows (-€7.3 bn in total) over the course of the first six months of 2024.
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.
