Investor allocations to European exchange-traded funds (ETF) reached a record high in 2024, although thematic ETFs had their first year of disinvestment in the past decade, according to Morningstar research.
Net flows into European ETFs and exchange-traded commodities (ETCs) last year totalled €247bn, up from €145.4bn in 2023, the firm said in an update today. The last previous annual high was €159bn in 2021.
Assets under management in ETFs totalled close to €2.18trn at the close of last year, a 33% increase in the year from €1.64trn in 2023.
Equity ETFs saw €197.2bn in inflows, driven by a strong preference for US equity exposure, particularly after Trump’s victory, according to Jose Garcia-Zarate, senior principal of passive strategies at Morningstar.
“In Q4 2024, US large-cap blend ETFs attracted €37.6bn, with the ‘Trump trade’ also extending to smaller market caps,” he said. “As [Donald] Trump’s inauguration nears, investors are betting that his protectionist agenda will provide a further boost to valuations.”
Thematic ETFs saw outflows of €1.1bn billion in 2024, which Morningstar described as “a far cry” from the highs of 2020-21, when annual flows averaged €10bn.
ETFs tracking the energy transition theme led the outflows, while those tracking the security and artificial intelligence and big data themes were in demand. Assets in thematic ETFs continued to grow, reaching €37.8bn at the close of 2024, compared with €34.3bn in 2023.
iShares topped the overall annual flows league table with €84.4bn, followed by Xtrackers with €36bn and Amundi with €27.5bn.
ESG decline
ESG sales continued to decelerate despite an uptick in Q4 2024, which saw ESG ETFs attract €12.2bn, up from €7.6bn in the third.
However, annual ESG flows amounted to €32.4bn, down from €42.8bn in 2023. The proportion of total ETF flows into ESG strategies has declined abruptly since 2022, Morningstar said.
In 2024, only 11% of all flows into equity ETFs in Europe were directed to ESG strategies. This was down from 34% in 2023 and 60% in 2022.
“Underperformance relative to mainstream propositions and uncertainty around regulations have been the key driving factors in the decline,” said Garcia-Zarate, also pointing to the thematic ETFs outflows.
In the US, Morningstar today reported that in 2024, outflows from active sustainable funds deepened to reach €19bn, up from €13bn in 2023.
“2024 was a turbulent year for ESG funds, with the increased politicisation of ESG issues, continuously high interest rates, greenwashing concerns, and a general preference for conventional strategies in a bull market,” said Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics.
In institutional investment, Finnish pension insurers Varma and Ilmarinen have turned to co-designing ETFs to meet financial and sustainablility-related needs.
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Krystle is IPE’s London-based senior reporter and splits her time reporting between IPE and its sister publication Impact Investor.
Before joining IPE Krystle worked as a financial journalist covering investment trends, and ESG. She was highly commended at the Headline Money Awards for Rising Star of the Year (B2B financial journalism).
She previously worked as a regional breaking news reporter for a daily newspaper.View full Profile
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