10/07/2024
The steady multi-decade growth in market share of passively managed funds in Europe has happened in tandem with another trend: increasing usage of exchange-traded funds (ETFs). ETF assets under management in Europe reached €1.8 trillion by the end of Q1 2024 according to Morningstar, a figure that was 10% higher than just three months earlier.
In some ways, European demand for ETFs is mimicking the success of the vehicle in the US, where a mass rotation of assets out of mutual funds and into ETFs has been taking place in recent years. But there are important differences between these two regions when it comes to ETFs.
Firstly, adoption of ETFs and passively managed funds in general in Europe is still relatively low: Morningstar reports that passively managed products accounted for almost 27% of European long-term fund assets at the end of 2023, while in the US passive fund assets recently surpassed the 50% mark.
Secondly, ETFs have taken a different route to market in Europe, where institutional buyers were credited as the early adopters (in the US, their success has been more associated with retail investors). Commission payments are still commonplace among retail intermediaries operating guided distribution models in some European markets, meaning ETFs are less compatible with such business models. Furthermore, there are tax efficiencies to investing in ETFs in the US that don’t apply in Europe.
That said, recent years have seen a growing retail buzz around ETFs in Europe, in no small part encouraged by heightened client awareness of and sensitivity to the costs of investing. Germany has been at the centre of a boom in appetite among self-directed investors for ETF savings plans.
Beyond the monitoring of such savings plans, it has been notoriously difficult to pinpoint exactly where ETFs have the most traction in Europe. Most are domiciled in Ireland or Luxembourg and then cross-listed to stock exchanges across the region (and beyond); some major markets such as the UK have no locally domiciled ETFs at all. By their nature, ETF trading takes place on the secondary market, either on exchange or over the counter, unlike that of mutual funds, so measuring uptake by market in Europe is complex.
This is where market research can play a crucial role. In the latest annual wave of Research in Finance’s European Fund Selector Study (EuroFSS), which tracks market sentiment and brand perceptions among nearly 900 retail and institutional fund buyers and distributors across eight markets, we ask multiple questions relating to ETFs, including:
This provides important insight into professional-investor preferences. For example, the study reveals that ETFs currently account for greater shares of passive business written in two out of the eight markets tracked: France, and Switzerland. As for market-leading providers of ETFs, BlackRock / iShares, Vanguard, and Amundi are generally seen as top-five providers in most markets, but local tastes can vary substantially beyond these three groups; over 80 different brands were mentioned by the study’s respondents.
EuroFSS provides a great snapshot of the current appetite for ETFs, but there is potential to explore so much more. With this in mind, Research in Finance is launching a new stakeholder study on pan-European ETF appetite later in Q3 this year, delving even deeper into specific product preferences and drivers of uptake.
If your business could benefit from topline views on ETF appetite or a much deeper dive on this topic, please get in touch to discuss either study in more detail and we’ll be delighted to assist you.
Contact Mick Hrabe or Richard Ley.
