As wrapped baskets of liquid securities turn to wrapped last-minute gifts, Europe’s ETF industry performs the uplifting annual ritual of applauding its own continued, explosive growth. Except, record-shattering inflows may be more of a vanity statistic than the more structural shifts which surfaced through the year.
According to data from ETFbook, European exchange-traded products (ETPs) gathered $252 billion net new assets between the beginning of the year and Dec. 12, not only marking the first time annual inflows have surpassed the sentimentally significant $200 billion milestone, but also outstripping the previous record set in 2021 by more than $50 billion.
However, as has been the case since the 2000s when multi-asset managers began incorporating passive instruments—and then ETFs—into their portfolios, inflows at high scale are as much an expression of market risk sentiment as they are enthusiasm for a particular delivery vehicle.
Indeed, inflows this year will be more than triple those booked during the turbulent year of 2022. Increasing US equity dominance in portfolios and investor psyches are also reflected in flows, with 12 of the year’s top 20 most popular ETFs being US equity strategies and 17 of the top 20 being ETFs at least two-thirds comprised of US equities, according to data from ETFbook.
So, a year of U.S. equity-led ETF expansion may not be entirely groundbreaking, especially when mutual funds had already booked $280 billion in inflows by the end of October. The more significant themes of the year were signs the wrapper is moving away from its traditional use cases and spheres of influence in Europe.
Active ETFs Have Arrived
It will be little surprise that active ETFs receive a mention in this context. With assets under management (AUM) in the segment rising from a low base of around $23 billion in January 2023 to $52 billion by October this year, growth in relative terms has been strong. However, the dominance of a single provider and its low tracking difference ‘research enhanced’ active approach to-date show the convergence of ETFs and active in Europe is still more gradual behavioral change than rapid wholesale adoption.
What many will have paid closer attention to the early shoots appearing, with established managers—Janus Henderson, Robeco, American Century and others—entering ahead of the anticipated demand shift from active mutual funds to ETFs in Europe. These will likely be just the first of many, with Jupiter Asset Management set to debut ETFs in the coming months alongside Schroders “looking” at entering the space.