Morningstar: European ESG ETF flows in Q1 dwindle, compared to Q4

Morningstar: European ESG ETF flows in Q1 dwindle, compared to Q4

April 17, 2024

ETFs ESG
Europa (02) omlaag

European ESG ETFs gathered € 7.1 billion in Q1, down from € 13.8 billion in Q4, representing 16% of total Q1 flows, down from 29% in Q4.

The Europe ETFs-market gathered € 44.5 billion of flows in Q1, down from € 47.4 billion in Q4 of 2023, Morningstar reports today. ‘In the recent quarter, investment inflows found solace within equity ETFs, notably gravitating towards the US market. However, amidst this surge, value equity strategies and German equities were sidelined. Concurrently, the once steady stream into bond ETFs witnessed a slowdown, reflecting investor recalibration of rate cut expectations.

Meanwhile, ESG appears to be going through a period of existential crisis as flows, while still positive in absolute terms, dwindle as a proportion of total flows, particularly within equity. It appears some investors forsake the long-term, fatigued by prolonged underperformance. Additionally, geopolitical uncertainties and the upcoming US election propel a tilt towards mainstream investments.’

Key findings for Q1 2024 Morningstar notes are:  

  • ‘The European exchange-traded fund and exchange-traded commodity market gathered € 44.5 billion of flows in the first quarter of 2024, down from € 47.4 billion in the last quarter of 2023.

  • Assets under management grew to € 1.81 trillion from € 1.64 trillion at the end of 2023. This was a 10% increase in the quarter - a new record-high for the market.

  • The bulk of flows in the first quarter went to equity ETFs, totalling € 36.8 billion. Investors mostly favoured US equity exposure, both individually and through global developed index propositions. Value equity strategies and German equity were out of favour.

  • Flows into bond ETFs totalled € 8.8 billion, down from € 14.1 billion in the fourth quarter of 2023. The slowdown was driven by investors´ recalibration of rate cut expectations.

  • Environmental, social, and governance ETFs gathered flows of € 7.1 billion in the first quarter, down from € 13.8 billion in the fourth quarter of 2023 and accounted for 16% of total flows, down from 29% in the previous quarter. There was a substantial decline in flows into equity ESG ETFs in the first quarter as investors prioritised mainstream U.S. and global developed equity exposures.’ 

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