AUM more than doubled in 2019

Jason Xavier, Head of EMEA ETF Capital Markets at Franklin Templeton has unveiled his predictions for the top global ETF themes to watch in 2020. Xavier believes the top 3 themes will be fixed income, ESG, and volatility. Of these, he believes ESG will become the fastest growing ETF strategy for the year.

Multiple growth drivers

Xavier outlines several of the factors driving the demand for sustainable finance products, including:

  • Regulatory – EU regulation is pushing for a sustainable finnance action plan, while governments and central banks increasingly view climate change as a systemic risk.
  • Risk quantification – Big data and artificial intelligence are able to capture explicit risks, such as climate risk, for proprietary investment use.
  • Demographic – Millennials appear to view values-based investing as a priority, and also tend to be more comfortable than prior generations with ETF investing.

One further Europe-specific driver Xavier describes is the “Lagarde Effect,” writing, “Having taken over the reins at the European Central Bank (ECB) at the tail end of last year, it’s clear that climate change is a priority for ECB President Christine Lagarde and will likely feature heavily in the ECB policy going forward.”

ESG ETFs have already been on a tear, particularly in Europe, where Xavier notes ETF AUM more than doubled in 2019 from $12 billion to $33 billion.

As we noted yesterday at ESG Today, demand for ESG funds picked up dramatically in the U.S. as well, but still remains far behind Europe.