August 2024 was another month with strong inflows for the European ETF industry.
These inflows occurred in a 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 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) and the Bank of England (BoE) already started to lower interest rates, it is expected that the U.S. Federal Reserve will start to lower the interest rates in the U.S in September. That said, investors seem to expect a 50-basis point (bps) cut by the U.S. Fed, while the latest statements from the U.S. Fed on its expectations for the economy and inflation may instead point in the direction of a 25 bps rate cut. This means that whatever the U.S. Fed is doing might be a disappointment for investors and may cause some market volatility. With regard to this, the statements from the Fed and other central banks might be the driver for estimated net flows in bond and money market ETFs.
In addition to this, it looks like European investors are also adapting their portfolios to the slowly normalizing yield curves. But even if the yield curves return to a normal shape, this does not mean that there is no recession possible in the major economies around the globe, since some major economies do lack economic growth and may need lower interest rates as stimulus. With regard to this, an excessively aggressive rate cut by any of the major central banks might be seen as an indicator for a possible recession and may cause a respective reaction from investors. Therefore, we might witness a heightened volatility in the equity markets until the central banks in September are completed.
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 €1,850.7 bn as of July 31, 2024, to €1,879.0 bn at the end of August). At a closer look, the increase in assets under management of €28.3 bn for August was driven by the estimated net inflows (+€19.9 bn), while the performance of the underlying markets contributed (+€8.4 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 (€1,393.7 bn) held the majority of assets, followed by bond funds (€395.1 bn), money market products (€43.6 bn), commodities products (€36.3 bn), alternatives products (€6.9 bn), and mixed-assets funds (€3.5 bn).
It is noteworthy that the overall assets under management in the European ETF industry (€1,879.0 bn) hit a new all-time high at the end of August 2024. With regard to this, it is no surprise that the assets under management for equity, bond, and money market ETFs also marked an all-time high at the end of the month.
Graph 1: Market Share, Assets Under Management in the European ETF Segment by Asset Type, August 30, 2024
Source: LSEG Lipper
ETF Flows by Asset Type
The European ETF industry enjoyed strong estimated net inflows (+€19.9 bn) over the course of August. These flows were way above the rolling 12-month average (€17.0 bn). If European ETFs can maintain their current level of inflows, the overall inflows for the year 2024 will reach a new all-time high, with estimated net inflows between €180.0 bn and €210.0 bn.
The inflows in the European ETF industry for August were driven by equity ETFs (+€14.6 bn), followed by money market ETFs (+€3.4 bn), bond ETFs (+€1.9 bn), commodities ETFs (+€0.2 bn), and mixed-assets ETFs (+€0.03 bn), while alternatives ETFs (-€0.2 bn) faced outflows.
Graph 2: Estimated Net Sales by Asset Type, August 2024 (Euro Millions)
Source: LSEG Lipper
Given the fact that money market ETFs normally play only a minor role in the European ETF industry, it was surprising to witness relatively high inflows into these products over the course of August 2024.
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 August 2024, the European ETF market was split into 168 different peer groups. The highest assets under management at the end of August were held by funds classified as Equity U.S. (€460.4 bn), followed by Equity Global (€325.0 bn), Equity Europe (€87.2 bn), Equity Emerging Markets Global (€82.2 bn), and Equity Eurozone (€64.1 bn). These five peer groups accounted for 54.23% of the overall assets under management in the European ETF segment, while the 10-top classifications by assets under management accounted for 65.45%.
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 €1,387.4 bn, or 73.84%, 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 reduced 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, August 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 4: Ten Smallest Lipper Global Classifications by Assets Under Management, August 30, 2024 (Euro Millions)
Source: LSEG Lipper
ETF Flows by Lipper Global Classifications
The net inflows of the 10 best-selling Lipper classifications accounted for €19.2 bn. In line with the overall sales trend for August, equity peer groups (+€12.8 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 (+€5.4 bn) was the best-selling Lipper global classification for August. It was followed by Equity U.S. (+€4.2 bn) and Money Market USD (+€2.0 bn).
It is surprising to see two money market classifications in the top half of the 10 best-selling Lipper classifications, since money markets in general are not a core asset type within the European ETF industry. The estimated inflows in these classifications may be an indicator that European investors have become cautious with regard to their positioning on the respective yield curves and may want to take profit from the elevated interest rate level on the short end of the yield curves, before they return to their normal shape.
More generally, 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, August 2024 (Euro Millions)
Source: LSEG Lipper
On the other side of the table, the 10 peer groups with the highest estimated net outflows for August accounted for €4.0 bn in outflows. These outflows were above the outflows for 10 peer groups with the highest outflows for July 2024 (€2.8 bn).
Bond USD Government (-€0.8 bn) was the Lipper Global Classification with the highest outflows for the month. The category was bettered by Bond USD Inflation Linked (-€0.8 bn) and Bond Emerging Markets in Local Currencies (-€0.5 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 59 ETF promoters in Europe holding assets at or above €1.0 bn. The largest ETF promoter in Europe—iShares (€830.1 bn)—accounted for 44.18% of the overall assets under management, far ahead of the number-two promoter—Amundi ETF (€240.3 bn)—and the number-three promoter—Xtrackers (€199.0 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, August 30, 2024 (Euro Millions)
Source: LSEG Lipper
The 10-top promoters accounted for 94.01% of the overall assets under management in the European ETF industry. This meant, in turn, the other 49 fund promoters registering at least one ETF for sale in Europe accounted for only 5.99% 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 eight of the 10 largest promoters by assets under management were among the 10-top selling ETF promoters for August. iShares was the best-selling ETF promoter in Europe for August (+€8.2 bn), ahead of Vanguard (+€3.0 bn) and SPDR (+€2.4 bn).
Graph 7: Ten Best-Selling ETF Promoters, August 2024 (Euro Millions)
Source: LSEG Lipper
The flows of the 10-top promoters accounted for estimated net inflows of €19.5 bn. As for the overall flow trend in August, it was clear that some of the 59 promoters (15) faced estimated net outflows (-€0.7 bn in total) over the course of the month.
Assets Under Management by ETFs
There were 3,840 instruments (primary funds and convenience share classes) listed as ETFs in the Lipper database at the end of August. Regarding the overall market pattern, it was not surprising assets under management at the ETF level were also highly concentrated. Only 403 of the 3,840 instruments held assets above €1.0 bn each. These products accounted for €1,369.5 bn, or 72.89%, of the overall assets in the European ETF industry. The 10 largest ETFs in Europe accounted for €317.3 bn, or 16.89%, 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 10 Largest ETFs by Assets Under Management, August 30, 2024 (Euro Millions)
Source: LSEG Lipper
ETF Flows at Share Class Level
A total of 1,556 of the 3,840 instruments analyzed in this report showed net inflows of more than €10,000 each for August, accounting for inflows of €41.0 bn. This meant the other 2,284 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 83 of the 1,556 ETFs posting net inflows enjoyed inflows of more than €100 m during August—for a total of €24.1 bn. The best-selling ETF for August was iShares Core MSCI World UCITS ETF USD (Acc), which enjoyed estimated net inflows of €1.6 bn. It was followed by iShares Core S&P 500 UCITS ETF USD (Acc) (+€1.4 bn) and iShares $ Treasury Bond 0-1yr UCITS ETF USD A (+€1.2 bn).
Graph 9: The 10 Best-Selling ETFs, August 2024 (Euro Millions)
Source: LSEG Lipper
The flow pattern at the fund level indicated there was a lot of turnover and rotation during August, 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 €9.6 bn.
Given its size and the overall trend for net sales at the promoter level, it was surprising that five of the 10 best-selling funds for August were promoted by iShares. These iShares ETFs accounted for estimated net inflows of €6.3 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 LSEG Lipper or LSEG.
