The
European
exchange-traded
funds
(ETF)
and
exchange-traded
commodities
(ETC)
markets
ended
2023
with
record
inflows
in
the
final
quarter
of
the
year.
European
index
funds
reported
inflows
of
€45.7 billion
(£39.3
billion)
in
Q4,
a
leap
of
45.5%
from
the
previous
quarter,
when
both
markets
had
absorbed
€31.4
billion
in
funds,
new
Morningstar
data
for
the
end
of
last
year
shows.
Overall, ETF
and
ETC products
waved
2023
goodbye with
total
inflows
of
£143.9
billion,
while
total
assets closed
the
year
at
a whopping
€1.64
trillion, a 9% increase from Q3
levels
of
€1.5
trillion.
Why
Did
ETFs
End
The
Year
on
a
High?
Much
of
the
rebound was due
to
buoyant
equity
markets,
which
led
to
generous inflows,
but
there
was
also
an
apparent
rebound
away
from
China
markets
into
proxy
markets
providing
indirect
exposure
to
Asia’s
biggest
economy.
Meanwhile,
European
equities benefited from
more
optimistic
sentiment for rate
cuts
in
2024,
thanks
to
cooling
inflation
and
the
gradual
acceptance
that
the US
economy
might
well
execute
a
so-called
“soft
landing”.
In
2023
Equity ETFs brought
in
€89.7
billion
of
flows,
a
73%
jump
from
2022’s
highs
of
€51.8
billion.
At
the
end
of
the
year
Equity
ETFs
held the
vast
majority
of
ETF assets –
a
totalling
€1.12
trillion
by
Q4.
Where
Did
Investors
Put
Their
ETF
Money?
Morningstar
data
shows
the
bulk
of
flows
into
European
ETFs
and
ETCs
were
for
those
which
provided
exposure
to
developed
markets,
with
the
US
the
preferred
destination.
The
US
large
cap
blend
equity
Morningstar
Category
topped the
quarterly
flows
league
with
€16.6
billion.
Although
it’s
a
category
where
the
US
usually
domintes,
global
large-cap
blend
equity
ETFs
came
in
second
place
with
inflows
of €8.7
billion.
One
category
whose
flows
were
larger
than
expected
was
Japan
Large-Cap
Equity.
ETFs
invested
in
Japanese
stocks
brought
in
around
€2
billion by
Q4,
pushing
the
total annual
inflow
into
these
products
to
€31.5
billion.
As
Morningstar
argued
last
year,
Japan’s
stagnant
economy
has
given
way
to
a
revolution
in
corporate
governance,
while
China’s
fall
from
grace
has
added
to
the
country’s
appeal.
As expected, China
was
shunned
by
investors
in
Q4,
although
the
UK
and
Germany
experienced
a
degree
of
investor
malaise.
These
latter
two
categories
closed
2023
with
net
outflows
of
€0.3
billion
and
€1.2
billion,
respectively.
Money
market
ETFs
also
saw
inflows
of
€5.1
billion,
meanwhile,
a
skyrocket
of
171% relative to
those
achieved
in
2022.
This
was
due
to
strong
demand
for
ultra-short
duration
strategies,
Morningstar
analysts
said.
Inflows
into
fixed
income
products
also
witnessed
a
dramatic
increase,
totalling
€57.2
billion.
This
was
a
72%
hike
from
the
€33.2
billion
recorded
in
2022.
By
Q4
flows
into
bond
ETFs
amounted
to
€14
billion,
up
from
€12.2
billion
in
Q3.
“Other
bonds”,
a category made
up
of
currency
hedged
share
classes
of
ETFs with exposure
to numerous bond
markets,
topped
the
top
10
list
for
inflows
in
Q4,
reporting
€4.19
billion.
But
Corporate
bond
ETFs
also
fared
well,
bringing
in
€3.4
billion
of
flows
in Q4.
This
category
was
also the
largest
in
the
fixed
income
European
ETF
market
with
assets
of
£51
billion
and
total
annual
flows
of
€11
billion
by
year-end.
What
Does
The
Gold
Exodus
Mean
For
Markets?
As
was
expected,
short-term
bond
categories
suffered
in
Q4,
which
could
signal
investors
expect
interest
rates
to
come
down
soon.
USD Government
Bonds –
Short
Term;
USD
Ultra
Short-Term
Bonds;
and
EUR
Corporate
Bond-Short
Term
were
the
categories
hit
hardest,
suffering
outflows
of
€0.54
billion,
€0.72
billion,
and
€1.28 billion,
respectively.
Commodity
ETCs
and
ETFs also endured
heavy
outflows
of
€4.9
billion
in
Q4.
In
2023,
investors
pulled
€9.2
billion out
of commodity ETFs and
ETCs, and overall assets
for
the
products
bled
€4
billion,
making
a
final
total
of
€101
billion.
Much
of
the
outflows
were
encouraged
by
precious
metals,
and
especially
products
exposed
to
gold.
However,
that
could
be
another
sign
of
investors’
hopes
for
2024
as
they
abandon
the
safe-haven
asset.
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