Key findings:
- The global ETF industry enjoyed overall inflows (+€103.4 bn) for January 2024.
- ETFs domiciled in the U.S. enjoyed the highest inflows (+€65.9 bn) for the month, followed by ETFs domiciled in Ireland (+€20.0 bn) and Japan (+€0.6 bn).
- Equity ETFs (+€43.6 bn) enjoyed the highest estimated net inflows for the month, followed by bond ETFs (+€32.6 bn) and alternatives ETFs (+€27.6 bn).
- The best-selling Lipper global classification for January 2024 was Alternative Currency Strategies (+€27.5 bn), Equity U.S. (+€22.0 bn), and Bond USD Corporates (+€9.4 bn).
- ESG-related ETFs enjoyed inflows of (+€0.3 bn) over the course of January.
- Vanguard was the best-selling ETF promoter globally for January (+€29.3 bn). It was followed by Grayscale (+€20.7 bn) and BlackRock (+€20.3 bn).
General Overview
The global ETF industry enjoyed healthy inflows over the course of January 2024. These inflows occurred in a further unstable market environment since the geopolitical tensions in Middle East, especially the Red Sea, increased over the course of the month and impacts from prolonged delivery times caused by the fact that shipping companies avoid the Suez channel as they don’t want their ships to be targets for the Houthi rebels.
Nevertheless, some asset classes showed positive results while others performed negatively. Market sentiment was further driven by hopes that central banks—especially the U.S. Federal Reserve—have reached the last phase of their fight against high and further increasing inflation rates given their rather dovish statements during/after the respective central bank meetings.
That said the statements from the U.S. Fed in January about a possible start of lowering interest rates might have caught some investors on the wrong foot, as the central bank indicated that they may start the lowering of interest rates later and with less steps in 2024 than some investors expected. This statement might have impacted the estimated inflows in bond ETFs.
In addition, some investors may have also reviewed their expectations for bonds, as there is the risk that the inflation in the major economies might be more sticky than expected and central banks are held responsible to reach their inflation targets. In addition, there are still some concerns about the possibility of a recession in the U.S. and other major economies around the globe. These fears have been raised by a lack of growth in some economies and the long-term inverted yield curves, which are seen as an early indicator for a possible recession. The normalization of inverted yield curves might be another short-term challenge for the bond markets.
On the other hand, the performance of six of the so-called Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) drove the U.S. markets up (the only exception was Tesla). The stellar performance of these stocks may remind some investors of the performance of some stocks before the burst of the so-called “dot.com bubble.” As a result, many investors might have been caught between fear and greed when looking at the U.S. equity markets.
That said, some major equity indices reached new all-time high values over the course of January 2024.
Within this market environment, the promoters of ETFs (+$79.4 bn) and the promoters of structured notes (+$24.0 bn) enjoyed overall inflows over the course of January 2024.
Table 1: General Overview on Global Assets Under Management and Estimated Fund Flows by Regions and Major ETF Domiciles (January 31, 2024)
Source: LSEG Lipper
Assets Under Management
Assets under management in the global ETF industry increased from $11,563.1 bn at the end of December 2023 to $11,374.6 bn at the end of January 2024. The majority of these assets ($8,760.1 bn) were held in equity ETFs. This category was followed by bond ETFs ($2,146.8 bn), commodities ETFs ($174.9 bn), alternatives ETFs ($106.8 bn), ”other” ETFs ($87.1 bn), money market ETFs (€57.8 bn), mixed-assets ETFs ($41.0 bn), and real estate ETFs (€0.02 bn).
Graph 1: Market Share Assets Under Management in the Global ETF Industry by Asset Type – January 31, 2024
Source: LSEG Lipper
Since this report covers a limited number of ETNs and ETCs, the so-called “structured notes” alongside ETFs, it is important to show the market share of assets under management of these products in comparison to ETFs to indicate the relevance and possible impact of these products for this study.
While ETFs held $11,145.7 bn, or 97.99%, of the overall assets under management, the structured notes covered in this report held $229.0 bn, or 2.01%, of the overall assets under management at the end of January 2024.
Graph 2: Market Share Assets Under Management in the Global ETF Industry by Product Type – January 31, 2024
Source: LSEG Lipper
Since ETFs are product wrappers which are used for passive index tracking products and active/semi-active strategies, it is important to shed a light on these two different product categories. Market observers expect more growth in the segment of active/semi-active products in the future since an increasing number of active managers start to launch ETFs not linked to an index. It is expected that this trend will continue after the patent on ETF share classes held by Vanguard expired in April 2023.
Nevertheless, it is no surprise that index tracking products held the vast majority of the overall assets under management in the global ETF industry ($10,684.4 bn or 93.93%), while ETFs which aim to outperform an index or are not linked to an index at all held $690.2 bn, or 6.07%, of the overall assets under management at the end of January 2024.
Graph 3: Market Share Assets Under Management in the Global ETF Industry by Management Approach – January 31, 2024
Source: LSEG Lipper
Assets Under Management Factor-Based ETFs
Since products which follow a factor-based strategy—the so-called smart beta products—can be found under both product types, it makes sense to highlight the high overall market share of factor-based products. Overall, factor-based products held assets under management of $2,323.8 bn at the end of January, which means in turn these products had an overall market share of 20.43%. The high percentage of the assets under management in factor-based ETFs shows that these products, which have been seen as marketing driven product launches in the past, have become mainstream investments over time.
Graph 4: Market Share Assets Under Management in the Global ETF Industry Factor-Based ETFs vs Conventional ETFs – January 31, 2024
Source: LSEG Lipper
It is actually no surprise that investors around the globe use factor-based ETFs within their portfolios since these products now offer access to a broad range of factors, which have been proven that they can be exploited to deliver additional returns for investors. Nevertheless, the potential outperformance of a given factor is often depending on the right timing of the investment, since single factors do not deliver a consistent outperformance. With regard to this it is no surprise that the global ETF industry developed products which use multiple factors. These products shall be easier to use for investors since the usage of multiple factors shall remove the need for market timing.
The graph below shows the variety of factor strategies which are available to investors.
As multifactor ETFs are convenient products, it is no surprise that these products held the highest assets under management in the segment of factor-based ETFs ($1,106.1 bn), they are followed by ETFs using dividends as selection factor ($392.1 bn), ETFs using the size factor ($201.2 bn), value factor ETFs ($198.8 bn), and ETFs using the growth factor ($165.3 bn).
Graph 5: Market Share Assets Under Management of Single Factors within the Factor-based ETF Universe – January 31, 2024
Source: LSEG Lipper
Read the full article here by Detlef Glow, LSEG Lipper
