ESG ETFs were that blockbuster fund in 2020

Sustainable ETFs were the overwhelming winners among passive products in 2020. That’s according to an evaluation by Lyxor ETF.

ESG ETFs accounted for the lion’s share of all ETF inflows last year, with $55.2 billion (€45.5 billion). The total represents 51 percent of all inflows into ETFs in 2020 and is more than double what it was in 2019, according to Lyxor ETF1’s Money Monitor 2020. 

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No outflows since January 2019

ESG ETFs have not suffered outflows in a single month since the start of 2019. At the height of market volatility in March 2020, they proved extremely resilient with positive inflows of $485 million (€400 million), while the rest of the ETF market saw outflows of $31.8 billion (€26.2 billion), according to Lyxor ETF research. Climate ETFs, despite their newness, already collected $2.4 billion (€2 billion) – evidence that mitigating climate change is high on investors’ agendas. 

Lyxor ETF’s Money Monitor 2020 analyzes last year’s inflows and outflows of 28,000 European open-end funds and ETFs, providing a comprehensive overview of key trends in the European asset management market. 

European ETFs collected nearly $109 billion (€90 billion)

In total, European ETFs collected $108.4 billion (€89.3 billion), in a financial market environment marked by the pandemic. That represents 13 percent of total inflows into funds and is in line with the 5-year average, which is also 13 percent. This is the third-highest annual inflows in history, following a record 2019 of $124 billion (€102.6 billion) in inflows. 

After outflows of $13.3 billion (€11 billion) in Q1 as a result of the Coronavirus outbreak, unprecedented support measures from central banks around the world were able to rekindle market momentum and bring about a strong market recovery. Risk assets were supported and funds flowed back into ETFs: the European ETF market saw inflows of $126 billion (€100.4 billion) from April to December 2020. 

Equity ETFs with the biggest inflows

Equity ETFs saw the largest inflows in 2020, with $67.2 billion (€55.3 billion). After a period of risk aversion and significant outflows at the start of the Covid 19 crisis, a more positive news flow – including the approval of several Covid 19 vaccines – supported the rally in risk assets, leading to cumulative inflows of $42 billion (€34.7 billion) into equity ETFs in November and December 2020. 

Inflows into fixed-income ETFs reached $39.9 billion (€32.9 billion) last year, up from $64 billion (€53 billion) in 2019. The total fixed-income sector, i.e., including funds and ETFs, suffered the most from the market crisis triggered by Covid-19, with record outflows totaling -$175.7 billion (-€144.7 billion) in March 2020 alone.

However, only 8 percent of total outflows involved ETFs, demonstrating their resilience even during the most turbulent periods of market turmoil. Outflows were spread across many sub-categories. U.S. government bonds remained one of the few safe havens, with inflows totaling (€120 million). Riskier sub-segments such as high-yield and emerging market bonds suffered significant outflows.  

“Investor appetite for ETFs has not diminished”

Vincent Denoiseux, Head of ETF Research and Solutions at Lyxor Asset Management, comments, “Investor appetite for ETFs has not waned during last year’s market turmoil, as ETFs proved to be liquid and reliable ways to access markets even when volatility was at its highest.

The pandemic also drew attention to the impressive surge in demand for ESG investments. ESG ETFs have become new market standards after being perceived as niche products just a few years ago. Investors are increasingly aware of the effectiveness of ESG ETFs in reallocating capital to a more sustainable economy on a large scale. We expect this trend to continue in the coming years.”

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(Featured image by viarami via Pixabay)

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