Industry Updates

ETF Wrap: The year in summary

An overview of European ETFs in 2023, London’s capital markets and factor ETFs underperformance made headlines this week

Jamie Gordon

ETF Wrap

A text-only summary of headlines this week as ETF Stream reviews 2023 and how monetary policy pivots shaped ETF flows and performance.

Some headline flows saw reshuffles from high- to lower-fee core ETFs, such as the combined $8.8bn into the iShares Core S&P 500 UCITS ETF (CSPX) and the Invesco S&P 500 UCITS ETF (SPXS) while $2.5bn and was pulled from the Xtrackers S&P 500 Swap UCITS ETF 1C (D5BM) and Amundi S&P 500 UCITS ETF (500).

Outside of core equity, anticipated policy pivots from the Federal Reserve and European Central Bank (ECB) prompted the ‘bonds are back’ and more targeted duration trades drove $5bn into the iShares Core € Corp Bond UCITS ETF (IEAC) and $3.8bn into the iShares $ Treasury Bond 20+yr UCITS ETF (IDTL).

Fears of overconcentration among a handful of large cap names in market cap-weighted US equities also saw investors turn to modified beta alternatives amid a combined $4bn inflows into the JPM US Research Enhanced Index Equity (ESG) UCITS ETF (JREU) and the Xtrackers S&P 500 Equal Weight UCITS ETF (XDEW).

However, headiness among US large caps and hopes a ‘soft landing’ scenario also sparked an exodus from defensive smart beta allocations, with $1.4bn exiting the iShares Edge MSCI USA Value Factor UCITS ETF (IUVL) and $1bn apiece flowing out of the iShares Edge MSCI World Minimum Volatility UICTS ETF (MVOL) and SPDR S&P U.S. Dividend Aristocrats UCITS ETF (UDVD).

On performance, a combination of anticipated interest rate cuts, the AI boom and hope of a US spot bitcoin ETF catalysed a surge in growth-heavy thematics, with the VanEck Crypto and Blockchain Innovators UCITS ETF (DAGB) spiking 283.3% through 2023.

However, the trickle through of past rate hikes on borrowing costs – and some pricing of a second Donald Trump US presidency – saw the clean energy roster plummet, led by the HANetf Electric Vehicle Charging Infrastructure UCITS ETF (ELEP) returning -39.5%.

Brexit has ‘isolated’ London

Elsewhere this week, Euronext CEO Stephane Boujnah told Financial News London’s capital markets have been left “isolated” following Brexit while consolidation on the continent has strengthened rival exchange providers.

While mergers between European exchanges have helped them counteract the appeal of New York as a listing destination, Boujnah said London’s liquidity pool continues to shrink.

With London having transitioned from “the largest capital centre of financial markets in Europe to the largest financial centre in of the UK”,  Boujnah said more consolidation could be on the cards in Europe as his firm is “monitoring” deals.

Factor ETFs ‘unexciting and poor’

Finally, a report from Finominal described factor performance and smart beta ETF returns in 2023 as “unexciting and poor”.

While growth factor ETFs returned modest excess returns of 0.4% against global benchmarks, laggard style segments such as low volatility ETFs trailed with 13.8% underperformance.

This came after smart beta ETFs booked their best year of outperformance in over a decade amid the volatile backdrop of 2022.

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