- European-listed ETFs attracted net inflows of $166 billion in 2023, making it the second-biggest year on record1.
- Equity ETFs outpaced fixed income ETFs in terms of total net inflows, although bond ETFs saw a relatively more impressive rate of growth in 2023.
- Core and sustainable equity ETFs finished 2023 with strong flows, while government and corporate bond ETFs led the pack for fixed income.
In the end, 2023 wasn’t such a bad year for investors. Recession never arrived. Inflation started to show signs of cooling. Major equity markets rose, with the US large-cap benchmark S&P 500 gaining more than 24%2 – due in large part to the exceptionally strong performance of the so-called “Magnificent Seven”3 and the resilience of the US economy.
There were bumps along the way, though, including the regional banking crisis in the US and the sell-off in shares of Credit Suisse, as well as ongoing geopolitical tensions. However, these challenges did little to dent the overall trajectory of markets and, indeed, ETF flows.
Against this backdrop, European investors consistently turned to ETFs. In 2023, European-listed ETFs attracted net inflows of $166 billion for the year. That figure made 2023 the second-biggest year for the category in terms of inflows, behind only 2021 when net inflows for European-listed ETFs hit $191 billion.
European-listed ETFs post second-highest inflows on record
Annual equity and fixed income flows, total AUM: 2015 – 2023 ($ billion)
Source: ETFbook, as at 31 December 2023.
So, where did European ETF investors focus in 2023? And were there any notable patterns towards the end of the year?
Investors go big on equity ETFs – core exposures in particular
Equity flows by category: 2023 ($ million)
Source: ETFbook, as at 31 December 2023. The ‘segment’ category includes equity exposures which target specific market capitalisation segments, such as small-cap, mid-cap and large-cap. The ‘market access’ category includes difficult-to-access markets such as emerging markets. The ‘basket’ category includes strategies that combine several stocks as the underlying exposure, such as FAANG stocks.
In a year when many broad equity benchmarks turned in strong performance, investors poured $58.5 billion into European-listed core equity ETFs. Sustainable equity ETFs also saw healthy net inflows, gathering $33.6 billion. Core and sustainable equity ETFs showed an especially strong trend during the final quarter of 2023, with each seeing month-on-month rises in net inflows to finish the year, adding totals of $24.9 billion and $14.0 billion, respectively, for that period.
Investors displayed a clear preference for US and world (excluding emerging markets) equity ETF exposures in 2023, as these two segments enjoyed full-year net inflows of $33.1 billion and $29.4 billion, respectively. Emerging markets ETFs welcomed $10.7 billion of net inflows. US and world equity ETF exposures were particularly popular to finish the year, attracting net inflows of $20.5 billion and $9.3 billion, respectively, in Q4 alone.
On the negative side of the ledger, sector and thematic ETFs both suffered net outflows in 2023, of -$1.9 billion and -$1.1 billion, respectively. Sentiment toward sector ETFs cooled dramatically in December 2023, when the category endured net outflows of -$1.3 billion. And while smart beta ETFs saw net inflows for the full year of $494 million, investors turned against the category in November and December, with net outflows for that period totalling -$943 million.
Eurozone equity ETFs saw net outflows of $656 million in 2023, while single-country ETFs also fell out of favour. Germany, Sweden and France equity ETFs all weathered net outflows last year, as investors withdrew -$1.8 billion, -$467 million and -$361 million, respectively. Meanwhile, the UK and China both finished 2023 on a down note. UK equity ETFs suffered net outflows in December of -$628 million while China ETFs finished the year with three straight months of net outflows, to the tune of -$1.4 billion.
Fixed income ETFs see record inflows, led by government and corporate bond ETFs
Fixed income flows by category: 2023 ($ million)
Source: ETFbook, as at 31 December 2023.
Fixed income ETFs attracted $70 billion of net inflows in 2023, making it the strongest year on record for the asset class. While inflows into equity ETFs outpaced those into their fixed income counterparts, fixed income ETFs accounted for 42% of all inflows, or far above their 26% market share of the broader European ETF market4 . We see an improved outlook for bonds, as laid out in the Vanguard economic and market outlook for 2024, and it will be interesting to see if this trend of positive flows into fixed income ETFs persists in the longer term.
Government bond ETFs brought in $28.3 billion of assets in 2023, followed by corporate bonds with $21.4 billion, ultra-short maturity bond exposures with $11.5 billion and aggregate exposures with $6.7 billion. While government bond ETFs had net outflows of -$239 million in December, the exposure gained net inflows of $6.2 billion across October and November. Corporate bond ETFs turned in a strong finish to the year, gathering $8.7 billion of net inflows across November and December (following -$1.7 billion of net outflows in October). High-yield bond ETFs had a positive Q4, with three straight months of net inflows, totalling $2.4 billion (bringing total net inflows for 2023 to $4.4 billion).
By geography, investors showed a preference for eurozone fixed income ETFs in 2023, as the region captured net inflows of $27.9 billion. US and global exposures saw net inflows of $23.4 billion and $9.4 billion, respectively. Eurozone bond ETF exposures finished the year with net inflows of $7.3 billion across November and December (after losing -$551 million in October) and US ETF exposures gathered more than $6.2 billion in Q4. Global fixed income ETFs enjoyed net inflows each month in Q4, for a quarterly haul of $3.9 billion.
In terms of negative flows, inflation-linked bond ETFs weathered -$2.7 billion of net outflows in 2023. Floating-rate bond products also endured net outflows, of -$2.1 billion. In regional terms, China bond ETFs suffered net outflows of -$1.2 billion, while emerging markets bond ETFs saw net outflows of -$603 million. Of note, China fixed income ETFs had three straight months of net outflows in Q4, for a total of -$409 million.
Vanguard UCITS ETFs
Vanguard range sees net inflows of $19.9 billion in 2023
Vanguard UCITS ETF net flows: 2023 ($ million)
Source: ETFbook, as at 31 December 2023.
The Vanguard UCITS ETF range captured net inflows of $19.9 billion in 2023, with the majority of ETFs in the range recording positive flows. Inflows were split between Vanguard’s fixed income UCITS ETF range ($8.2 billion) and equity UCITS ETF range ($11.6 billion), while the multi-asset UCITS ETF range saw net inflows of $191 million.
1 Source: ETFbook, as at 31 December 2023.
2 Source: S&P Dow Jones Indices, as at 29 December 2023. Returns shown are price returns.
3 The “Magnificent Seven” refers to a group of US stocks, namely Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.
4 Source: ETFbook, as at 31 December 2023.
Popular Vanguard ETFs in 2023
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