Investors poured 571 billion dollars into exchange-traded funds (ETFs) worldwide in 2019, the second-highest annual reading on record and 11% more than in 2018, driven by buoyant markets, lower fund costs and new passive strategies.
Assets invested in all ETFs across the world reached a record 6.3 trillion dollars at the end of 2019, according to ETFGI data, as investors turned to equities especially during the latter weeks of the year. December 2019 registered the second-highest monthly inflows on record, ETFGI said in a statement.
The STOXX® Global 1800 Index rose 28.4% to a record during 2019,1 its best annual performance in a decade, on optimism that the global economy will keep expanding and that the US and China would avert a full-on trade war. The Eurozone’s EURO STOXX 50® Index increased 29.3%.2 The STOXX® Europe 600 Index had a total return of 27.6%,3 and reached an all-time high last December when excluding the effect of dividends.
Amid bullish markets, interest in index-based funds grew as the products offer low management fees, transparent methodologies and remain appealing as market-access products.
European ETF milestone anniversary
In Europe, the move to passive investing helped ETF assets top 1 trillion dollars in December for the first time ever, according to ETFGI data reported by the Financial Times.4
Morningstar, which reported flows in euros and whose data may differ slightly from ETFGI’s, said Jan. 14 that European-listed ETFs had record net inflows of 107 billion euros (120 billion dollars) in 2019.5 Inflows more than doubled from the 46 billion euros registered in 2018, when European markets fell, and beat the previous annual record of 99 billion euros from 2017.
Fund assets ended the year at 923 billion euros, up 37.2% from 2018, Morningstar said. The number suggests European ETFs may surpass the 1-trillion-euro mark in assets just as the industry celebrates the 20th anniversary of the listing of the first ETFs in Europe. Two funds tracking the EURO STOXX 50® Index and STOXX® Europe 50 Index,6 respectively, were listed on the Frankfurt exchange in April 2000.
“The European ETF industry now boasts a string of 15 years of uninterrupted growth in flows and assets,” wrote Jose Garcia-Zarate, Associate Director at Morningstar, in a report. “And the outlook remains positive as the shift towards low-cost passive investing continues apace. At this rate and under the assumption of upward-trending market prices, the market could hit 2 trillion euros by 2024.”
Almost 16% of all capital lured by European-domiciled ETFs last year, or 16.7 billion euros, went to ESG-focused funds, according to data from Morningstar. That is 4.5 times the amount gathered in the previous year, as sustainability mandates sweep across the asset-management industry.
“We are seeing impressive growth rates in ESG flows that reflect the pick-up in interest from all corners of the investment community,” said Willem Keogh, Head of ESG and Thematic Solutions at STOXX’s parent Qontigo.
“The transformation of investment universes with an ESG focus is catching up with the most important benchmarks, creating an acceleration of the phenomenon,” said Roberto Lazzarotto, Global Head of Sales at STOXX. ESG stands for environmental, social and governance strategies.
Factor-based index strategies, which select stocks according to specific sources of risk and returns, attracted a net 9.7 billion euros, the most in at least a decade. The purchases increased the funds’ assets to 74 billion euros, from 52 billion euros in 2018.
“While in strong rallying markets factor strategies were less of a differentiator of performance, the uncertainties at the global level could rapidly offer these an opportunity to prevail,” Lazzarotto said of factor-based strategies’ returns in 2019.
1 Gross returns in dollars.
2,3 Gross returns in euros.
4 FT, ‘Passive investing boom reaches Europe as assets hit $1tn,’ Jan. 5, 2020.
5 Morningstar Direct European ETF Asset Flows Update — Q4 2019.
6 The funds were the precursors to the iShares Core EURO STOXX 50 UCITS ETF and the iShares STOXX Europe 50 UCITS ETF, both currently trading.