Beyond Bulls & Bears


Year in review: 2023 ETF predictions report card

What were the big ETF trends of 2023? David Mann, Global Head of ETF Product & Capital Markets, reviews some of his predictions for this year—and how they panned out.

Now that we’ve had the annual debate over the best way to brine a turkey (salt and buttermilk for us) we know we’re near the end game of 2023. Per my usual tradition, that means I need to say a few words about exchange-traded fund (ETF) tax-loss harvesting and then offer a report card on my ETF predictions for 2023.

I must admit that this year has been a lot of fun from a blog-writing perspective. In case there was any doubt, readers are far more interested in Taylor Swift than anything related to ETF trading or liquidity. I enjoyed creating ETF analogies with summer gardening and Colorado football, only to watch various animals decimate my cucumbers and tomatoes and the Colorado Buffaloes subsequently lose seven of their next eight football games. The last thing I need is any sort of perception of an ETF blog jinx going into 2024.

But first, I need to grade the predictions I made for 2023 before I give some thought to 2024 predictions (coming soon).

Prediction #1: Active muni funds will be the active fixed income ETF story of the year

From last year’s column:

“I see the overall municipal bond ETF pie continuing to grow and active management increasing its share of that pie. I predict more than 20% of municipal bond ETF inflows in 2023 will be directed toward active funds.”

The numbers through October 31, 2023: All muni ETF inflows: $8.3 billion; active muni ETF inflows: $1.8 billion (22%).1

Bam! Now, predicting that this would be the “story of the year” was a bit overzealous given the asset class size, but my thinking that active ETFs would make a leap in 2023 was right on target. Total active ETF net inflows are over $100 billion for 2023 and have accounted for approximately 30% of all ETF inflows.2 Active muni ETFs were almost in line with that trend, even with municipal bond mutual funds once again seeing outflows for the year.

Investors now realize that the operational and trading efficiencies that ETFs offer are fully available for active strategies. The timing could not be better from a tax-loss harvesting perspective as many fixed income index funds (including those that hold municipal bonds) are down on the year. We believe there is no better time to make the leap into active ETFs!

Grade: A

Prediction #2: Equity dividend ETFs will find a broader audience

From last year’s column:

“As more investors appreciate newer dividend strategies that could serve as a core holding, the assets under management growth potential significantly increases. I predict that 15% of equity ETF inflows come from dividend ETF strategies.” 

The numbers through October 31, 2023: All equity ETF inflows: $204 billion; dividend ETF inflows: $1.3 billion (<1%).3

Ouch. Not even 1% of flows of equity inflows went to dividend strategies. A couple thoughts come to mind as to why this is not terribly surprising. There has been a strong growth equity rally in the United States year-to-date, possibly to the point that some investors might have looked to technology stocks as their safe-haven asset option over traditional rate-sensitive sectors such as utilities and real estate, which tend to be staples for equity-focused dividend strategies. It also did not help that cash has been paying more than 5% at various points this year.

Benjamin Franklin famously said, “He that is good for making excuses is seldom good for anything else.” So, no excuses…I will take my lumps for this prediction and move on.

Grade: D-

Prediction #3: ETFs that hold international equities will shine

From last year’s column:

“Put that all together, and I think this year we should finally see momentum for ETFs that hold international equities. I predict they will account for more than 40% of equity ETF flows in the United States.”  

The numbers through October 31, 2023: All equity ETF inflows: $204 billion; international equity ETF inflows: $59 billion (29%).4

Not terrible but not great either! Over the past five years, international equity ETFs accounted for approximately 25% of all inflows.5 In fact, it is pretty shocking how consistent that number has been, so if I tilt my head to the right, the jump to 29% is a meaningful move. However, if I tilt my head to the left, that is still more than 10% below my prediction.

From a performance perspective, there were certainly some stand-out international equity markets in 2023, such as Mexico, Taiwan and Brazil as well as some that were down on the year like China (tax-loss harvesting alert!). I think the bigger takeaway is that choosing the right international equity exposure can make a meaningful difference within an investor’s portfolio.

Grade: B-

I suppose if I had given a prediction on the quality of my predictions, it would have included one good, one bad, and one in the middle, which is exactly what happened. Not exactly the honor roll this time but not flunking either. Good enough for me to enjoy the holiday season with my head held high!  You will hear from me again in a few weeks with my 2024 ETF predictions.


All investments involve risks, including possible loss of principal.  

Equity securities are subject to price fluctuation and possible loss of principal.

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.

Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. 

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1. Source: Morningstar. As of October 31, 2023.

2. Source: Morningstar. As of October 31, 2023.

3. Source: Morningstar. As of October 31, 2023.

4. Source: Morningstar. As of October 31, 2023.

5. Source: Morningstar. As of October 31, 2023.

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