Report shows ETF rebound despite net flows decline

The fifth annual collaborative report tracking global exchange traded fund (ETF) trends has been released, revealing a “sustained” growth trajectory in 2023 despite a net flows drop in the APAC region.

A collaboration between J.P. Morgan Asset Management (JPMAM), State Street and Trackinsight, the report showed ETF assets soared to $11 trillion in 2023, driven by a massive boost in active ETF engagement particularly in North America and the APAC region. The former saw 25 per cent of the total flows in active ETFs which hit $630 billion, while the latter saw a revival in 2023 after two years of muted demand.

While thematic investments experienced weaker demand now than during the pandemic years, themes like AI, robotics and automation stole the global spotlight with $3.6 billion in inflows in the US and Europe. Europe’s ongoing dedication to net zero targets and green economy transition saw these themes record over $10 billion in new inflows.

“This year’s Global ETF Survey underscores the vibrant expansion and the transformative potential of the ETF industry. Our collaboration with JP Morgan and State Street has enabled us to present a report that not only captures the current state of the market but also offers forward-looking insights that will benefit investors and industry stakeholders alike. The findings highlight the adaptability of ETFs to market changes and investor needs, reinforcing their essential role in contemporary investment strategies,” Philippe Malaise, CEO of Trackinsight, said.

“We coined the phrase ETF 3.0 several years ago, as a description of the exponential growth we expected to see for active ETFs globally. The 2024 survey results echo our predictions. Global investors are telling us they are allocating more to active ETFs, would be more apt to purchase a strategy if it was converted from a mutual fund to ETF, and would like to see global regulators enable a listed ETF as a share class of an unlisted fund,” Francis Koudelka, Senior Vice President & Global ETF Product Specialist at State Street, said.

“We remain bullish on the growth of active ETFs globally.”

The report also highlighted the renewed popularity of cryptocurrency ETFs, in the wake of the US’ Securities and Exchanges Commission (SEC) approving spot Bitcoin ETF applications, with over $1.5 billion in assets in North America and over $1 billion in Europe. The APAC region maintained its limited presence in the cryptocurrency exchange traded product (ETP) space, with only a handful of products available and not on the Australian Securities Exchange (ASX).

While the APAC region saw a drop in environmental, social and governance (ESG) ETF investment to $1 billion in 2023, Europe continued to lead the pack at $50 billion in inflows, accounting for a 75 per cent share of the $550 billion ESG ETF market.

Fixed income has continued to reap the benefits of renewed investor interest amid inflation and market volatility even in the ETF space. North America saw $200 billion in net flows into fixed income ETFs, taking the total amount of assets in the region to over $1.5 trillion. Europe doubled its inflows from last year, recording $66 billion in 2023 to take the total number of assets to near $500 billion.

“ETF adoption continues to increase globally and across APAC, as investors become more comfortable with the transparency, daily liquidity, and attractive fee proposition. APAC is expected to see even stronger ETF asset growth momentum compared with other regions, with a growth rate of ~20% (vs ~15% for global),” Philippe El-Asmar, APAC Head of ETF, Digital & Direct, J.P. Morgan Asset Management, said.

“APAC investors are progressively evolving from passive to factor-based and strategy-based ETFs, ultimately to actively managed ETFs. As a pioneer in active ETFs, we look forward to leading the active revolution in the ETF industry by delivering our world-class active capabilities in the ETF wrapper.”