Exchange traded funds (ETFs)

Active ETFs are undoubtedly one of the hottest trends in the industry, offering investors the enhanced portfolio diversification and potential for alpha-generation of traditional active mutual funds, albeit in an ETF wrapper, resulting in markedly lower fees and much greater accessibility. While to date only a small percentage of total AuM in Europe are invested in actively managed ETFs, there is a clear indication that investors are starting to shift their capital towards these instruments. 

Getting closer to end investors

The consistently significant growth opportunities for ETFs globally will require ETF managers to employ a broader set of distribution channels including digital, further invest in investor education and have an open mind to the use of partnerships to access new investor markets. The ability to deliver more personalised solutions will continue to be an important factor for investors making the scale challenge even more difficult for ETF issuers.

With few exceptions (e.g. Germany, Italy, Austria), retail investors all across Europe are so far mostly not (yet) concerned with ETF investments. A situation that is expected to change drastically. Innovations in ETF distribution to retail investors like ETF savings plans, direct investing, or commission-free trading as well as increasing retail investor awareness and “education” offer a great potential for both promoters and distributors to develop solutions tailored to retail clients and tap into this vast pool of so-far unseized assets.

As in any other asset class, the consideration of environmental, social, and governance criteria in investment strategies, passive or active, continues to play a significant role especially in Europe. This results in a significant number of new ETF launches being ESG-focused (as per the 2023 PwC Global ETF Survey, over 70% of European respondents expect more than half of their launches in 2024 to be ESG-focused).

While the ETF growth continues to be exceptionally strong across the globe, APAC and LATAM are notably the regions with most significantly growing interest in ETFs, particularly also in EU-domiciled ones. Next to new ETF launches locally, passporting UCITS ETFs to these (new) regions is one of the most prominent distribution- and growth strategies.

Delivering more for less

Technology holds the key to meeting increasing operational demands, cutting costs and sustaining returns. By leveraging cloud platforms, big data and especially new AI capacities ETF managers have the opportunity to enhance investor engagement, gain deeper insights into their needs and expedite product development. Accelerated digital transformation will improve decision-making, speed up time-consuming tasks, as well as transform entire processes, functions, and business models. Use cases for technology range from indexing over portfolio management to marketing and distribution.

With the SEC approval of the first spot Bitcoin ETFs in the U.S. in January 2024 and the unprecedented inflows to the first such funds launched there, the importance of these products for investors and, consequently, promoters cannot be underestimated. In the EU, due to the specificities of the UCITS regulation, there is to date not the same traction on crypto ETFs as in other parts of the world but with demand expected to grow continuously, there is almost certainty that, sooner or later, there will be solutions to launch or sell comparable products also in Europe.