Euro ETF Inflows Overshadowed by U.S. Equities in 2024

Despite record-breaking inflows into European ETFs in the first half of 2024, US equities remained the preferred choice for investors, driven by strong performance in specific sectors and a favorable regulatory environment. This article explores the factors contributing to the growth of European ETFs and the reasons behind the continued dominance of US equity ETFs.

European ETFs experienced a surge in popularity in 2024, with inflows reaching €104 billion in the first half of the year. This growth was driven by investors' confidence in the continent's economic recovery and the European Central Bank's (ECB) accommodative monetary policy. The ECB's commitment to maintaining low interest rates and quantitative easing programs created a favorable environment for European ETFs, attracting investors seeking stable, predictable returns.

Equity ETFs, comprising 73.3% of EU-domiciled ETFs, were the primary driver of growth, with a 3.5% year-over-year increase. Within European ETFs, the top-performing sectors were technology and health care, which rallied due to long-term trends and earnings growth. Tech and healthcare sectors emerged from their earnings recessions, with quarterly earnings per share growth year-over-year reaching 17.7% and 9.2% respectively in 4Q20.



However, US equity ETFs remained the dominant force, with 12 of the year's top 20 most popular ETFs being US equity strategies. This trend was supported by the tech and healthcare sectors, which rallied due to long-term trends and earnings growth. Despite rising interest rates, the author advises against selling best-of-breed companies like Amazon and Apple, as they are built to last and have strong management.

The regulatory environment in Europe has significantly influenced the attractiveness of ETFs, contributing to their record inflows in 2024. According to PwC Luxembourg's report, EU-domiciled ETFs grew from €1.47 trillion in December 2023 to €1.72 trillion by June 2024, driven by factors like cross-border registrations and a broadening range of thematic and ESG offerings. Additionally, the Central Bank of Ireland (CBI) amended its stance on share class naming rules, enabling fund promoters to launch ETF share classes of an existing fund without renaming the entire subfund, while Luxembourg's parliament and Commission de Surveillance du Secteur Financier (CSSF) offered favorable tax treatment on subscriptions and a shift to monthly disclosure of active ETF holdings.

In conclusion, while European ETFs experienced record inflows in 2024, US equity ETFs remained the preferred choice for investors, driven by strong performance in specific sectors and a favorable regulatory environment. The continued dominance of US equity ETFs underscores the importance of diversifying investment portfolios and considering the unique characteristics of different markets. As the global investment landscape evolves, investors should remain vigilant and adapt their strategies to capitalize on emerging opportunities.