In 2023, European ETFs raised $159 billion, marking the second-highest annual inflow in history, as reported by Invesco’s European Demand Monitor.
Total assets under management reached a record-breaking $1.8 trillion, propelled by robust inflows and market-driven gains of 16.8%.
Equity net new assets (NNA) surged by 62%, totalling $96.2 billion, compared to $59.6 billion in 2022. Global equities dominated, contributing $39.7 billion, comprising 42% of total equity flows. US equities followed with 33%, and emerging markets with 13%, resulting in a record-high equity AuM of $1.25 trillion.
Fixed-income ETFs also attracted $68.2 billion in NNA, surpassing the previous 2019 record. Investors favoured higher quality bonds amid elevated yields, mitigating the need for additional credit risk, data revealed. Developed market government bond ETFs, particularly US Treasury and euro government bonds, led the fixed-income category.
In 2023, ESG ETFs attracted $47 billion in inflows, making up 20.3% of industry AuM, with a 2.1% yearly market share increase. Despite a slowdown from prior years, the 29% flow participation remained notably above market share and close to the previous year’s NNA ($47 billion vs $53 billion).
However, after a strong 2022, broad ESG strategies underperformed, particularly strict best-in-class strategies, which saw a 75% reduction in flows in 2023—the primary segment of the ESG ETF market.
In 2023, ESG investors shifted towards specific issues, like funds tracking EU climate benchmarks, attracting $14.9 billion in NNA. ‘Lighter touch’ strategies, focusing on exclusions, also gained traction, accumulating $13.3 billion in inflows, signalling a change in ESG investment preferences.
“We envision a more supportive environment for all asset classes in 2024, as interest rates peak and central banks pivot to more dovish stances”, said Gary Buxton, head of Emea ETFs at Invesco. With improving conditions, overlooked markets may gain more interest, particularly thematic exposure to sectors like clean energy. These areas benefit from long-term structural support amid the global shift toward a low-carbon economy, added Buston.
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