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The European ETF industry enjoyed record inflows (+€256.4 bn) over the course of 2024. These inflows were way above the inflows of the former record year 2021, when ETFs enjoyed estimated year-to-date net flows of €161.4 bn.Equities (+€198.5 bn) were the best-selling asset type for the year. The inflows into equity ETFs must be seen in comparison to the outflows from actively managed mutual funds (-€62.2 bn). This means that European investors seem to prefer ETFs over mutual funds when it comes to equity investments.Bonds (+€295.9 bn) were the best-selling asset type in the European fund industry. As such, the comparably low inflows into bond ETFs (+€37.7 bn) were somewhat surprising. That said, one could argue that the market share of the inflows is in line with the market share of the assets under management in the bond segment, but as the European ETF industry is considered a fast-growing part of the European fund industry it is expected to capture a higher market share of the flows. With regard to this, one could say that this flow pattern means that European investors seem to prefer actively managed mutual funds over ETFs in the bond segment.One reason for this might be a lack of products in classifications such as Bond Global Corporates in Local Currencies or Bond Europe High Yield. In addition to this, there is a lack of available actively managed strategies which might hold flows back since investors may be looking for more active/unconstrained products instead of plain-vanilla index products within the bond segment. The lack of products might be a subject of change, as we might see a lot of promoter activity when it comes to the launch of actively managed bond ETFs in the near future. Additionally, I believe that European investors would appreciate if the choice of target maturity bond ETFs would be enhanced by more maturity dates with different issuers (corporate vs. government) and ratings (investment grade vs. high yield).That said, investors often need a longer track record for their fund selection process. This, in effect, would mean that active bond ETFs won’t see a lot of investor interest until they have a more robust track record.In addition to this, the strong inflows into money market ETFs (+€21.4 bn) for the year 2024 were somewhat a surprise, since money market products normally don’t play an important role in the European ETF industry. However, the flows into money market products over the course of 2024 seem to be driven by the inverted yield curves as investors may want to harvest higher interest rates with lower duration risk as in the bond segment.A view of the best-selling Lipper classifications shows no surprises as ETFs classified as Equity U.S. enjoyed the highest estimated net flows (+€85.2 bn) for 2024. This classification was followed by Equity Global (+€64.5 bn), Money Market EUR (+€11.5 bn), Money Market USD (+€10.6 bn), and Equity U.S. Small & Mid Cap (+€9.6 bn). The inflows into Equity U.S. Small & Mid Cap might be a sign that European investors started to diversify their portfolios over the course of the year 2024, as the market share of the leading stocks in the U.S. equity markets increased further over the course of the year.With regard to the structure of the bond segment with its multiple layers of performance drivers (base currency, credit rating, issuer, etc.), it was no surprise to see only two bond classifications—Bond Global USD (+€6.0 bn) and Bond EMU Government (+€4.8 bn)—on the list of the 10 best-selling Lipper classifications. As investors use those ETFs which fit their portfolios best, the flows in bond ETFs are widespread over different classifications.A view of the other side of the league table shows that there are classifications with estimated net outflows even in a record year. Nevertheless, as the altitude of these outflows is very low, these flows can’t be used to determine any trends. Bond Emerging Markets Global in Local Currencies (-€2.4 bn) was the Lipper classification with the highest outflows for the year 2024. It was bettered by Bond USD Government (-€1.9 bn) and Equity Theme – Alternative Energy (-€1.2 bn).If one would need to make an assumption about the Lipper classifications which faced outflows, it would be fair to say that European investors have in general reduced some of their exposure to more exotic or niche markets.More By This Author:S&P 500 Earnings Dashboard 24Q4 – Monday, Feb. 3Excessive Belt-Tightening Risks Choking U.S. Economy Was The European ETF Industry In A Rush To Launch New Products In 2024?
