ESG products comprised the majority of total flows into European ETFs and ETCs last year, despite underperforming the mainstream, Morningstar's Q4 2022 European ETF Asset Flows report has found.
In the fourth quarter, ESG ETFs attracted €14.9bn, driving up the annual total to €51bn. This represented 65% of all flows into both ETFs and ETCs in 2022, up from 53% in 2021.
These products now account for 18.8% of total assets in ETFs and ETCs in Europe, after assets grew to €248.8bn. If ETCs are excluded from the calculation, this figure goes up to 20.5%.
Despite the challenging conditions for financial markets last year, the European ETF market still managed to attract annual inflows of €78.4bn.
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This was down from €169bn in 2021, but is better than the strong outflows from active funds, said Jose Garcia Zarate, associate director of passive strategies.
Despite positive flows, the decline in equity and bond market valuations drove assets under management in ETFs down to €1.32trn from €1.41trn in 2021.
Most major ETF providers saw a fall in both flows and assets in 2022, with the exception of Vanguard, which reported a slight increase in flows that fully offset capital losses.
"Its minimal exposure to ESG in a year when ESG underperformed mainstream investments is likely to have been key," said Garcia Zarate.
At €1.3bn, thematic ETFs attracted significantly less assets in 2022, down from €11.2bn from 2021. In the fourth quarter, they gathered just €200m.
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Investors poured €13.3bn into equity ETFs in the fourth quarter, with a preference for global developed-markets exposures. These funds closed the year with total flows of €50.7bn, although assets dropped to €884.7bn from €972.3bn in 2021.
Bond ETFs brought in €16.4bn over the quarter, up from €8.1bn in the third quarter. This pushed the annual total to €32.8bn.
"Investors have been drawn to rising yields, favouring US government and EUR-denominated corporate bonds. Chinese bonds remained out of favour throughout," Garcia Zarate added.
