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Both the number of ETFs and their assets under management are growing fast. This trend is not only visible in Europe—it is a global phenomenon. While all regions enjoy a wider adaptation of ETFs by professional investors, other growth drivers differ from region to region.

One of the major growth drivers in the European ETF industry is the increasing retail adoption via digital platforms such as neo-brokers and savings-plan platforms, a trend which took off in Germany during the COVID-19 pandemic and has since spread across Europe (and beyond). This trend is driven by the fact that neo-brokers lowered the bar to enter the market for retail investors by allowing them to trade fractional shares of ETFs, which brought the minimum investment amount down to 1.0 euro.

Product innovation is one of the universal growth drivers in the ETF industry since investors around the globe are looking for innovative investment strategies which allow them to generate the (risk-adjusted) returns they need to fulfill their goals. Even as the ETF industry can be called mature, we still see product innovation in all kinds of asset types. The new ETFs offer exposure to new kinds of bonds such as CLOs, thematic equity or bond exposures, ESG-linked strategies (especially post-SFDR clarity), and non-transparent/active ETFs. The extended investment options also broaden the appeal of ETFs across investor segments.

Talking about product innovation, the mega-shift toward actively managed ETFs in the U.S. has ignited a global trend, with strong growth for actively managed ETFs in Europe and uptake on a somewhat slower pace in the Indo-Pacific region. Despite the high growth rate for products and assets under management in this market segment, it is clear that passive ETFs will remain dominant in the global ETF industry in the foreseeable future.

With regard to this, it is noteworthy that the trend toward actively managed ETFs in the U.S. was fueled by a tax advantage for ETFs which mutual funds can’t replicate for investors. This tax advantage is not available outside the U.S., which means actively managed ETFs are expected to grow at a slower pace in the rest of the world.

In addition to this, investor demand will keep the growth rate of assets under management and number of available products up. This is because an increasing amount of investors are looking for more tailored strategies—especially if they want to replace a specific mandate in their portfolio.

With regard to the above, it can be concluded that the global ETF industry is in the throes of dynamic growth—a tale shaped by strong estimated inflows, retail democratization, and strategic innovation. Whether through smart passive options or the increasingly popular active wrappers, ETFs are cementing their role at the heart of Europe’s investment ecosystem.

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