Article

Europe’s record year for ETF demand

23 January 2025
Invesco
ETFs European Demand Monitor
Key takeaways
1

European ETFs gathered US$90.2 billion of net new assets in Q4, bringing the total for 2024 to US$265.4 billion 

2

Equity ETFs dominated flows in Q4 and 2024, led by strong demand for US and Global exposures

3

We expect strong ETF flows to continue in 2025, even if market returns may not match last year’s performances

In terms of investor demand, 2024 was a huge year for the European ETF market, with overall numbers and consistency of that demand both noteworthy. ETFs domiciled in Europe raised a record $90.2 billion in the fourth quarter of 2024, eclipsing Q3 (the previous record) by more than $20 billion and taking net new assets (NNA) for 2024 to $265.4 billion. This is a new record for annual inflows, passing the previous high in 2021 by more than $80 billion. Record inflows combined with a strong market gain of 11.4% to boost AUM for the EMEA ETF industry by $472 billion during the year to $2.3 trillion.

European ETFs saw a strong and steady flow of new assets in 2024

Source: Bloomberg, net new assets into Europe-domiciled ETFs, 1 January to 31 December 2024

The main themes seen in Q4 reflected those for the majority of the year with equity products dominating and taking 91% of NNA over the quarter and 80% for the full year. Flows into fixed income ETFs eased off in the last quarter of the year, bringing market share of NNA down to 23% for the year, which combined with fixed income losses to reduce AUM share from 24% to 21%. Commodity ETPs experienced further net outflows of $2.7 billion in Q4 to bring the total for the year to $7.8 billion.

The strength in demand for equities was primarily focused in US and Global exposures, taking three quarters of all equity inflows for the year. This environment played to a number of Invesco’s ETF strengths. The structural performance benefit of US-exposed swap-based ETFs saw our S&P 500 products take in $11 billion of NNA helping our ETFs to take a third of all swap-based ETF flows for the year. Assets under management more than doubled for the MSCI USA ESG Universal Screened (to $2.9 billion AUM) and Technology S&P US Select Sector (to $1.6 billion). It was also a strong year for our Quantitative Strategies ESG Global Equity product which saw more than $0.5 billion NNA to take AUM to $910 million and our FTSE ALL-World ETF where AUM increased more than ten-fold to $850 million.

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Outlook for 2025

Last year’s record flows highlighted a broader adoption of ETFs as a vehicle of choice across all types of investors, which is likely to continue in the future. Central banks changed course in 2024, easing policy as inflation continued to trend towards target and their focus switch to supporting growth. While this has provided a supportive environment for financial markets, it now appears that there will be fewer cuts this year with data showing the global economy remains healthy while policies from incoming President Trump could both boost growth and drive inflation higher. However, while financial market performance in 2025 may not be as strong as it was last year, flows into EMEA ETFs are likely to remain robust.

  • Equities: Questions still remain over the concentration in markets, as noted above we have seen strong flows into equal weight ETFs in the second half of the year and we expect this to continue as long as markets remain distorted.
  • Fixed Income: With fewer rate cuts likely in 2025 and credit spreads at historically tight levels, it’s difficult to expect strong performance from bond markets in the year ahead. However, yields are at attractive levels and, provided there isn’t a sharp economic downturn, taking the carry available across bond markets looks like it will provide healthy returns. In the short term, yield curves are likely to steepen further but there will become a point when the combination of steeper curves and outright yield levels will attract investors to add duration in their bond portfolios.
  • Commodities: Gold is likely to remain supported through central bank demand along with its diversification benefits. The outlook for broad commodities is more mixed, particularly if rates remain higher for longer. Nevertheless, the anticipated ‘soft landing’ means that demand for commodities should remain firm and, as investors are generally underweight commodities, could see some buying on any pullback in performance. 

 

 

Asset Class

2023 Y/E

AUM ($million)

AUM
($million)

Q4 NNA

($million)

YTD NNA ($million)

YTD % Market Moves[1]

 

Total

1,811,419

2,283,579

90,216

265,375

11.4%

Equity

1,251,555

1,649,859

82,112

211,394

14.9%

Fixed Income

432,642

481,818

10,504

62,002

-3.0%

Commodity

114,785

131,200

-2,736

-7,852

21.1%

      Source: Invesco, Bloomberg, as at 31 December 2024. All figures in USD.

  • Equity AUM hit new all-time highs in Q4, ending the year at $1.65 trillion, driven by a combination of strong inflows and market performance. At $211 billion, 2024 equity net new assets (NNA) is 50% higher than the level of inflows in 2021, the previous record year for equity ETFs.
  • Fixed income AUM fell slightly over the quarter as net inflows slowed while returns were negative. The $10.5 billion NNA was the weakest quarter for inflows since Q3 2022, while the $62 billion of net inflows for the year was a drop of 9% on 2023. Nevertheless, fixed income AUM ended the year 11% higher and saw the highest number of new product launches since 2017, indicating a strong commitment to the asset class by issuers at current yield levels.
  • Commodity products continued to suffer outflows, with $2.7 billion of net sales over the quarter led by outflows from gold (-$1.8 billion) as prices rallied to new all-time highs in October. However, even though outflows totalled $7.9 billion for the year, commodity AUM still ended the year 14% higher given the strong performance of gold over the year.

Net new assets as a percentage of start of 2024 AUM – Q4 was all about the strength in equities

  • While it was a strong year for both equities and fixed income, equities pulled ahead in terms of growth rate in Q4, capturing 91% of net inflows.

Source: Invesco, Bloomberg, as at 31 December 2024. All figures in USD.

  • Equity AUM hit new all-time highs in 2024, ending the year at $1.65 trillion. The strength in equity ETF demand was supported by a combination of a record $211 billion NNA and a strong 14.9% market return over the year.
  • US equities were the largest contributors to inflows over the year with $91.1 billion. Flows for US and Global ETFs were neck-and-neck going into the fourth quarter but $46.5 billion of inflows in Q4 made US equities the clear preference for investors, accounting for more almost half of total equity flows.
  • Global equities were a clear second with inflows also accelerating in Q4 to $24.2 billion of inflows (up from $14.6 billion in Q3) brining flows for the year to $67.6 billion. Flows into products tracking the MSCI World index dominated the flows into global equity exposures with $38.1 billion of NNA over the year, while broad global indices (combining EM & DM) captured $13.2 billion of inflows in 2024.
  • After a strong start to the year, appetite for European equities tailed off in Q4 with $249 million of outflows. Flows for the year totalled $11.8 billion, with the region hanging on to third place in equity flows for the year. This is only half a billion ahead of Smart Beta products.
  • Smart Beta products saw a surge of interest in Q3 and Q4 with NNA of $5.0 billion and $7.5 billion respectively, bringing total flows for the year to a respectable $11.3 billion. This was almost entirely driven by equal weight strategies, which gained $15.3 billion of inflows offsetting outflows from more traditional factor strategies. This surge in buying of equal weight suggests a growing concern about concentration risk in broad market cap-weighted exposures.
  • Emerging market equities slowed in Q4 with $1.5 billion of inflows, half the level of NNA in Q3. This bought total flows to $8.2 billion for the year. The rebound in Chinese stocks during the last couple of weeks of September provided a catalyst for investors to add to emerging equities. However, specific China equity products saw a fading of appetite in the latter part of Q4, ending the year with $1.3 billion NNA.
  • Thematics saw $0.3 billion of inflows in Q4, reversing the outflows seen in Q3 to end the year with $2.5 billion of NNA. The biggest inflows were into AI and Defence related thematics while Clean Energy and Healthcare exposed products were generally out of favour.
  • Japanese equities saw a return to inflows in Q4 ($406 million) following the $2.5 billion of outflows in Q3 that were prompted by strengthening yen during July and August. Total flows over the year were positive with $1.3 billion of NNA.

NNA ($m): Equity ETF flows

Source: Invesco, Bloomberg, as at 31 December 2024. All figures in USD.

  • With NNA of $10.5 billion, fixed income ETFs experienced the weakest quarter for net inflows since Q3 2022. For 2024, fixed income ETFs experienced net inflows of $62 billion, a drop of 9% relative to 2023, bringing market share of NNA down to 23% for the year which, combined with relative performance fixed income markets relative to equities, caused its AUM share to fall from 24% to 21% over the course of the year.
  • The key themes seen earlier in the year continued in Q4 with the safe-haven asset classes of developed market government bonds and cash management seeing the strongest demand taking in $5.6 and $4.5 billion respectively.
  • After lacklustre demand in the middle of the year, high yield was the third strongest category with net inflows of $2.1 billion.
  • Aggregate bond exposures continued to see steady demand ($1.2 billion) while further inflows were seen into the relatively new category of fixed term bonds ($1.1 billion).
  • After a bounce in Q3, emerging market debt experienced strong outflows (-$2.5 billion) along with investment grade credit (-$2.1 billion).

NNA ($m): Fixed income ETF flows

Source: Invesco, Bloomberg, as at 31 December 2024. All figures in USD.

  • Commodities saw net outflows of $2.7 billion during the quarter, led by outflows from gold (-$1.8 billion) as the price rallied to new all-time highs at the end of October, although silver products did experience net inflows ($0.4 billion).
  • However, there was weakness across the board with all commodity categories experiencing net sales during the quarter with outflows of $0.5 billion from smart beta, $0.4 billion from other single commodity ETFs and $0.3 billion from broad commodity exposures.
  • Overall, 2024 has been a disappointing year for commodity ETPs which have seen net sales of almost $8 billion during the year.

NNA ($m): Commodity ETP flows

 

AUM ($million)

% of Current AUM

Q4 NNA ($million)

% of Q4 NNA

YTD NNA ($million)

 % of YTD NNA

Non-ESG

1,837,121

80.4%

73,150

81.1%

224,463

84.6%

ESG

446,458

19.6%

17,066

18.9%

40,912

15.4%
  • At $17.1 billion, ESG products saw 18.9% of ETF flows for the quarter, just shy of their AUM market-share of 19.6%.
  • Q4 included the strongest month of ESG flows this year (+$8.0 billion in October), however, 2024 as a whole has seen the lowest level of absolute ESG flows ($40.1 billion) and smallest NNA market-share for ESG funds (18.9%) since 2019, a time when the overall level of AUM in ESG funds was actually less than $40 billion.
  • In every quarter of 2024, funds that apply negative screens have been the strongest ESG category NNA-wise, with such funds taking in over $25 billion for the year (including $9.5 billion in Q4). This is a marked improvement in flows for this category vs. prior years. In fact, only these exclusionary funds, and those with a light touch best-in-class approach, saw an increase in flows this year compared to 2023.
  • Climate strategies have struggled in 2024 and even with modest inflows of +$2.3 billion this quarter, NNA is effectively flat for this category through the year. Only one of the five climate funds with the biggest inflows for Q4 is a strict PAB-aligned product, highlighting again that it’s the lighter-touch ESG approaches that have won out this year.
  • Invesco ESG ETFs gathered $2.3 billion in 2024, 13.9% of Invesco overall NNA. Whilst this share was a little lower than we saw for the wider market, the breakdown by ESG categories wasn’t dissimilar. Lighter-touch approaches, in the case of Invesco those that ‘tilt’ to improve scores, saw the most flows, whilst climate products experienced modest outflows.

NNA ($m): ESG vs Non-ESG ETFs

Source: Invesco, Bloomberg, as at 31 December 2024. All figures in USD.

Related insights

  • Footnote

    1 Source: Invesco using Bloomberg data on EMEA-domiciled products as a proxy, based on percentage change in AUM excluding the impact of NNA during the period. 

    Investment risks

    For complete information on risks, refer to the legal documents. Any investment decision should take into account all the characteristics of the fund as described in the legal documents. For sustainability related aspects, please refer to invescomanagementcompany.ie/dub-manco. The investment concerns the acquisition of units in a passively managed, index tracking fund and not in a given underlying asset.

    Value fluctuation: The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.

    Equity: The value of equities can be affected by certain factors such as issuer’s circumstances or economic and market conditions. This may result in value fluctuations.

    Applies to Invesco MSCI USA ESG Universal Screened UCITS

    Concentration: The Fund might be concentrated in a specific region or sector or be exposed to a limited number of positions, which might result in greater fluctuations in the value of the Fund than for a fund that is more diversified.

    Environmental, social and governance: The Fund intends to invest in securities of issuers that manage their ESG exposures better relative to their peers. This may affect the Fund’s exposure to certain issuers and cause the Fund to forego certain investment opportunities. The Fund may perform differently to other funds, including underperforming other funds that do not seek to invest in securities of issuers based on their ESG ratings.

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    Concentration: The Fund might be concentrated in a specific region or sector or be exposed to a limited number of positions, which might result in greater fluctuations in the value of the Fund than for a fund that is more diversified.

    Synthetic ETF Risk: The Fund might purchase securities that are not contained in the reference index and will enter into swap agreements to exchange the performance of those securities for the performance of the reference index.

    Applies to Invesco Quantitative Strategies ESG Global Equity Multi-Factor UCITS ETF 

    Environmental, social and governance: The Fund intends to invest in securities of issuers that manage their ESG exposures better relative to their peers. This may affect the Fund’s exposure to certain issuers and cause the Fund to forego certain investment opportunities. The Fund may perform differently to other funds, including underperforming other funds that do not seek to invest in securities of issuers based on their ESG ratings.

    Concentration: The Fund might be concentrated in a specific region or sector or be exposed to a limited number of positions, which might result in greater fluctuations in the value of the Fund than for a fund that is more diversified.

    Securities lending: The Fund may be exposed to the risk of the borrower defaulting on its obligation to return the securities at the end of the loan period and of being unable to sell the collateral provided to it if the borrower defaults.

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