European ETFs Outperform in 2024: A Look at Top Performers
The year 2024 saw a robust performance for U.S. stocks, with the S&P 500 experiencing gains exceeding 23%. While index-tracking funds mirrored this success, a select group of actively managed ETFs offered in Europe significantly outperformed. A CNBC Pro analysis of 321 European ETFs investing in equities, fixed income, or commodities (excluding leveraged or inversely performing funds) revealed some surprising winners, highlighting the potential of innovative investment strategies in a dynamic market.
Key Takeaways: A Stellar Year for Select European ETFs
- Exceptional Returns: Several actively managed ETFs listed in Europe achieved returns significantly higher than the S&P 500’s 23% gain.
- Active vs. Passive: The top performers showcased the advantages of actively managed funds, particularly those combining active and passive strategies.
- ESG Focus: Many of the top-performing ETFs incorporated Environmental, Social, and Governance (ESG) factors, demonstrating growing investor interest in sustainable investments.
- Geographic Diversification: While focused on U.S. equities, some of the best-performing ETFs included global diversification, mitigating risk.
- JPMorgan and Invesco Lead: JPMorgan and Invesco ETFs dominated the top spots, underlining their strong investment strategies and market positioning.
JPMorgan’s JEUS: A Blend of Active and Passive Excellence
The standout performer of 2024 was JPMorgan’s US Research Enhanced Index Equity SRI Paris Aligned UCITS ETF (JEUS), achieving a remarkable 30.3% return. Listed in Germany, this ETF represents a new generation of funds combining active and passive management approaches. JPMorgan Asset Management describes JEUS as "actively investing primarily in a portfolio of U.S. companies while aligning with the objectives of the Paris Agreement." This dual focus is a key differentiator, appealing to investors seeking both strong returns and alignment with sustainable investment goals. The fund’s commitment to the Paris Agreement, a crucial international accord aiming to limit global warming, underscores its dedication to ESG principles. JEUS’s success showcases the potential of actively managing a portfolio within a specifically defined mandate.
Deconstructing JEUS’s Success:
Several factors contributed to JEUS’s outstanding performance. Firstly, the active management component allows the fund managers to identify and capitalize on market opportunities that a purely passive index-tracking fund might miss. Secondly, the focus on U.S. companies, coupled with the alignment to the Paris Agreement, allowed for shrewd stock selection within a booming market. However, it is important to note that both the active management and the ESG focus carry their own risks. The active management component may not always lead to outperformance, and the ESG focus might narrow potential investment choices.
Invesco’s IQSA: Global Reach and Multi-Factor Approach
Close behind JEUS was Invesco’s Quantitative Strategies ESG Global Equity Multi-Factor UCITS ETF (IQSA), with a return of 29.9% in 2024. Holding $921 million in assets, IQSA is a larger fund, showcasing its appeal to investors. Unlike JEUS, IQSA adopts a global investment strategy, with a significant 70% allocation to U.S. equities. The remaining 30% is diversified across international markets, including noteworthy holdings in companies like Royal Bank of Canada and Trane Technologies (Ireland). This diversification likely contributed to its resilience and consistent returns. IQSA’s multi-factor approach incorporates various quantitative metrics beyond just market capitalization or valuation, potentially resulting in portfolio resilience and outperformance.
A Multi-Year Track Record of Success:
The long-term performance of IQSA is equally impressive. Having been active for five years, it has consistently outperformed its MSCI World Total Return benchmark for the last four years. This consistent outperformance suggests Invesco’s quantitative multi-factor ESG strategy is sound, attracting and retaining investor interest. The success of both JEUS and IQSA serves to highlight the growing interest of European investors in actively-managed, ESG-focused ETFs with international diversification.
The Top 5 and the Rise of ESG-Focused ETFs
Rounding out the top 5 best-performing ETFs in 2024 were: Ossiam US ESG Low Carbon Equity Factors UCITS ETF, JPMorgan’s Japan Research Enhanced Index Equity ETF, and Fidelity Sustainable Research Enhanced US Equity UCITS ETF. The presence of multiple ESG-focused funds in this list underscores a significant trend: investors increasingly prioritize sustainability alongside financial returns. This trend is not solely limited to Europe; ESG integration is becoming a mainstream consideration globally, reflecting a maturing awareness of environmental and social challenges and their impact on investment value.
The Future of ESG Investing:
The success of these ETFs suggests that ESG investing is more than a niche; it’s a powerful and effective investment strategy generating strong returns. Although the correlation between ESG performance and financial success is still subject to ongoing debates and research, the 2024 performance strengthens the case for a growing investor preference for sustainability focused investments.
Conclusion: Navigating the ETF Landscape
The exceptional performance of these actively managed ETFs in Europe highlights the potential for achieving significant returns through innovative strategies that combine active management, ESG integration, and geographic diversification. While past performance does not guarantee future results, the success of funds like JEUS and IQSA illustrates the evolving landscape of ETF investing. Investors looking beyond traditional index funds might find compelling value propositions in this new generation of actively managed, ESG-focused ETFs. The strong performance provides compelling data points for investors weighing passive and active fund options in pursuit of portfolio diversification and growth. This trend is further supported by the substantial assets under management for these increasingly popular actively managed ETFs. It further suggests that responsible and sustainable investment approaches not only meet investor demands for ethical considerations, but also create attractive value propositions yielding notable returns.