Not all ESG funds performed badly. The iShares Global Clean Energy Ucits ETF took in €459mn during Q1 © Bloomberg

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Flows into exchange traded funds that are focused on better environmental, social and governance (ESG) outcomes amounted to €13bn in the first quarter, less than half of the €27bn that went into them in Q4 2021, Morningstar data for Europe show.

Just 30.4 per cent of total money put into ETFs in Europe in Q1 went into ESG funds, down from the 79 per cent record high in Q4 last year.

Thematic ETFs, like ESG portfolios and other funds that also tend to come with a quality growth bias, have seen demand shrink amid the disastrous performance of recent months. Flows into these types of funds amounted to €0.6bn in Q1 2022, down from €2.1bn in the previous quarter.

Morningstar observes that this was the first quarter since 2019 in which thematic ETFs failed to attract at least €1bn of net inflows.

This article was previously published by Investors Chronicle, a title owned by the FT Group.

That is not to say that all such ETFs have been left out in the cold. With Russia’s invasion of Ukraine putting a spotlight on the need for renewables, the iShares Global Clean Energy Ucits ETF (INRG), a poster child for thematic funds, took in €459mn during Q1. The iShares Agribusiness Ucits ETF (SPAG) took in €418mn, and iShares Digital Security Ucits ETF (SHLG) and L&G Cyber Security Ucits ETF (ISPY) both took in more than €200mn in Q1.

As recently noted, there have been interesting performance differentials between the two in recent months, with the iShares Digital Security Ucits ETF falling 8 per cent during Q1 and iShares Digital Security Ucits ETF ending the quarter relatively flat.

Investors have also rushed into gold funds and broader commodity plays, with gold exchange traded products offered by Invesco and iShares taking in almost €5bn between them.

While the behaviour of ETF investors often tends to reflect what is happening in both the active management space and wider markets, that has not always been the case in the first quarter of this year.

With the sheer extent of inflation becoming difficult to ignore, investors in ETFs and other funds have made some fairly intuitive moves, with appetite for quality growth funds and fixed income allocations appearing to tail off. But this has not resulted in outright selling of ETFs — some investors are continuing to favour even those subsectors that look increasingly under pressure.

European Bond ETF sales fell from €8.4bn in the final quarter of 2021 to €5.1bn in the first three months of this year. But the fact that this was a positive figure contrasts with data on other parts of the funds market. Investment Association data show that UK investors pulled £1.6bn net from open-ended fixed income funds in January and February 2022, unsurprising given the growing sell-off in this space.

Various bond ETF categories have registered net outflows over the first quarter in Europe, from US dollar inflation-linked bond funds to various high-yield bond categories.

A handful of funds registered notable outflows, from short-duration plays such as the iShares $ Treasury Bond 1-3yr Ucits ETF (IBTS) and Pimco US Dollar Short Maturity Ucits ETF (MIST), to inflation-linked and high-yield bond funds. Funds that suffered outflows included the iShares $ High Yield Corp Bond Ucits ETF (SHYU), iShares Global High Yield Corp Bond Ucits ETF (IGHY) and iShares Fallen Angels High Yield Corp Bond Ucits ETF (RISE), which seeks to invest in debt that has been downgraded from investment grade to high yield that could make a comeback. Investors also exited what was a popular fund in 2021 — the iShares China CNY Bond Ucits ETF (CNYB).

While it might seem surprising to see investors calling time on high yield, a fixed income subsector often viewed as being more resilient against inflation and rising rates, this could reflect concerns that a recession seems more likely. The same thinking might explain the enduring popularity of US government bonds. US government and corporate bond funds were the two most popular fixed income categories during Q1, and a variety of other government bond ETFs also remained popular.

In a commentary on the latest data, Jose Garcia-Zarate, associate director of passive strategies at Morningstar, noted that the bulk of fixed income investment going into developed market bond ETFs “may look a bit odd, but simply confirms that in times of market stress US assets will always prove to be the ultimate safe haven for investors”. 

This might also explain the exodus from Chinese bond products. “Here too we see how the rise in interest rates in the US, with its negative effect on bond prices, actually makes the search for yield away from developed countries less attractive,” he said.

*Investors Chronicle is a 160-year-old publication from the Financial Times offering an expert and independent view of the investment market. It provides educational features, investment commentary, actionable tips and personal finance coverage. To find out more, visit

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