DWS has blamed weak investor appetite for ETFs after it recorded passive outflows of €3.8bn in the three months to the end of September.
It marks the second consecutive quarter of passive outflows for the German asset manager, after investors sold €3.3bn in Q2, and comes despite net inflows into its ESG ETFs over the period.
“This [alternative inflows] helped us to offset quarterly net outflows in passive, as investor appetite for ETF remains weak, in line with the continued decline of ETF flows industry wide,” Claire Peel, chief financial officer at DWS, told investors.
“However, our passive ESG offerings continue to attract positive net inflows, reaffirming the demand we see for ESG ETFs, enabling us to report differentiated growth in the asset class.”
Peel also gave a gloomy outlook for Q4 as it expects outflows from its ETF products to continue until the end of the year.
“From the first couple of weeks of October we continue to see a risk of outflow performance in ETFs,” Peel added.
The German asset manager added investors continued to de-risk their portfolios “given the prevailing expectation of a recession and falling share prices”.
Driving the outflows over the quarter were the Xtrackers Euro STOXX 50 UCITS ETF (XESC), the Xtrackers S&P 500 Equal Weight UCITS ETF (XDEW) and the Xtrackers S&P 500 Swap UCITS ETF (D5BM) which recorded €1.2bn, €950m and €929m outflows over Q3, respectively, according to data from Bloomberg Intelligence.
ETF flows were a mixed bag for asset managers over the quarter, with DWS posting the second-highest outflows after Amundi, which saw an ETF asset exodus of €4.8bn.
Europe’s largest issuers also recorded outflows. ETF investors redeemed €1.1bn from UBS Asset Management, €471m from Invesco, €320m from State Street Global Advisors and €307m from BlackRock.
Conversely, Vanguard (€2bn), BNP Paribas Asset Management (€1.7bn), JP Morgan Asset Management (€1.2bn) and HSBC Asset Management (€1.1bn) all posted strong inflows.
Doubling its ETF offering
Despite DWS’s assessment of the declining sentiment towards ETFs, the asset manager said it is still on target to double its ETF offering by the end of the year.
“We have also continued to accelerate our ETF product launches to further scale our passive business, all of which now have a stronger focus on sustainability,” Peel said.
“This includes our planned ESG ETF launches in the fourth quarter, helping us to remain on track to double our ETF offerings by the end of 2022, as targeted.”
Earlier this week the firm launched a government green bond ETF, the Xtrackers Eurozone Government Green Bond UCITS ETF (XGEZ), building on the two investment-grade green bond ETFs launched in July 2021.
In September, DWS expanded its range of Paris-aligned climate ETFs, providing exposure to US, European and Japanese equities, following a launch of four ESG-screened thematic ETFs in July.
The asset manager’s doubling down on ESG comes at a time when it faces multiple investigations over its sustainability practices. Last week, a German consumer group said it was suing the asset manager for allegedly misleading sustainability claims in its advertising.
The claim comes less than six months after former CEO of DWS Asoka Woehrmann stepped down after police raided its offices amid allegations of greenwashing.
DWS said legal expenses associated with the dismissal of former group sustainability officer Desiree Fixler “peaked in the nine-month period in 2022” but that it expects costs to decline in Q4.
“We do, of course, learn from our experience and continue working with the authorities to resolve the investigations as a top management priority,” Stefan Hoops, CEO of DWS, told investors.
“As I said last quarter, our main goal is to restore our credibility in ESG and remain committed to being one of the flagbearers for ESG in Europe.”