Growth Projections and Market Dynamics

The European ETF market is projected to continue its growth trajectory, driven by increasing investor adoption. In Q3 2024, the market saw $501 billion in net new inflows, with global flows reaching $1.45 trillion for the first three quarters of 2024. The US leads the way, followed by Europe, which is growing even faster due to its underweight market position in certain sectors.

In the US, ETFs represent 25% of regulatory funds, while in Europe, they represent only 12%, indicating significant room for growth. The US retail market is well-developed, with retail investors accounting for 40% of the market. In contrast, Europe’s retail market is less developed, with only 10–15% penetration. However, digital platforms and marketing campaigns are starting to drive growth.

ESG ETFs are expected to see significant growth in the long term as investors prioritize sustainable investing. However, in the short to medium term, investors are less likely to prioritize ESG investing due to uncertainty over ESG-related labels and regulations, as well as performance relative to the wider market. Advancements in technology and digital platforms will facilitate easier access to ETFs, supporting market growth. Growing interest from institutional investors will contribute to the expansion of the ETF market. Continuous innovation in ETF products, including thematic and active ETFs, will drive growth.

EY predicts that the European ETF industry will reach $4.5 trillion by 2030, representing double-digit growth. Globally, the ETF market is expected to reach $25 trillion by 2030, up from $14 trillion currently.

Retail Investor Uptake and Digital Platforms

There is a noticeable increase in the popularity of ETFs among retail investors across Europe, driven by their inherent benefits, industry promotion, and accessibility. The rise of ETF savings accounts, digital investment platforms, and robo-advisors has made it easier for retail investors to access and invest in ETFs. Increased efforts by financial institutions and platforms to educate retail investors about the benefits and mechanics of ETFs are contributing to higher uptake.

Younger generations, particularly Millennials and Gen Z, are showing a strong preference for ETFs due to their online profile, simplicity, and low fees. ETF savings accounts are driving growth in retail across several European markets. Germany leads the way, with 10.8 million accounts at the end of 2024, up from 7.6 million at the end of 2023. Other countries are following Germany’s lead as providers expand platforms across European jurisdictions.

Europe has twice as many people as the US (750 million vs. 340 million), presenting a huge untapped market. Germany is a poster child for retail adoption, with marketing campaigns targeting ages 18–25, resulting in 1 in 4 holding an ETF. Italy and the Nordics have self-directed investors, while the UK has only 1% penetration in ETFs compared to 50% in the US. Greater adoption of online platforms by Millennials and Gen Xers, along with demographic shifts, will drive growth.

Active and Crypto ETFs

Active ETFs are gaining traction as investors seek to outperform traditional benchmarks. In September 2024, active ETFs exceeded $1 trillion. European regulators are providing an environment that is supporting growth. Active ETFs offer a range of strategies, including thematic, sector-specific, and ESG-focused options. They are often more cost-effective than actively managed mutual funds, attracting cost-conscious investors. Traditional asset managers are looking to enter ETFs to gain inflows in ever greater numbers.

Crypto ETFs face significant regulatory scrutiny, with approval processes being stringent. However, in 2024, the SEC approved the first bitcoin spot ETFs, and their inflows are being driven by buoyant performance and US election results. The top five bitcoin ETFs in the US have approximately $70 billion in AUM, which they have achieved in less than one year. These ETFs offer diversification benefits by providing exposure to a new asset class.

New Entrants and Market Penetration

The entry of new players into the European ETF market is increasing competition and driving innovation. New entrants are bringing diverse and innovative ETF products to the market, catering to various investor needs. They are focusing on penetrating underserved markets and segments within Europe. Collaborations and partnerships with established financial institutions and market players are helping new entrants gain a foothold. New entrants must navigate complex regulatory landscapes to successfully launch and manage ETFs in Europe.

Collaborations and partnerships with established financial institutions and market players are helping new entrants gain a foothold. New entrants must navigate complex regulatory landscapes to successfully launch and manage ETFs in Europe.