WisdomTree: Retail adoption and product innovation drive European ETF growth

October 24, 2024

Exchange-traded fund (ETF) adoption will continue to grow in Europe over the next ten years, with retail adoption and product innovation among the key drivers of this growth, according to a survey commissioned by WisdomTree, a global financial innovator.

European ETF industry assets under management (AUM) have grown to $2.1 trillion, a $409% increase since WisdomTree launched in Europe ten years ago. The survey reveals that 1% of Benelux professional investors believe there will be no ETF growth in Europe over the next ten years.

The survey, conducted by Censuswide, a market research consultancy, polled 817 professional investors across Europe, ranging from wholesale financial advisory firms and institutional investors to wealth managers and family offices. The investors surveyed are responsible for approximately €4.4 trillion in assets under management.

European ETF growth drivers

Survey respondents expect several factors to keep driving ETF growth in Europe. Benelux professional investors surveyed highlighted increased retail adoption (33%) and innovative product development (25%) as key factors contributing to this growth.

The survey shows positive European ETF growth prospects in the short term, too, with 53% of professional investors surveyed in Benelux expecting to increase their allocation to ETFs in the next twelve months. However, there are still barriers to ETF adoption, as 34% of Benelux professional investors say they do not allocate (more) to ETFs due to a lack of knowledge about the investment wrapper.

Alexis Marinof, Head of WisdomTree Europe, said: 'The European ETF industry has gone from strength to strength over the past decade, with AUM set to reach $4.5 trillion by 2030. There are still educational hurdles to overcome, but the next ten years could be even brighter than the last, with our research pointing to many growth drivers. We believe that the retail opportunity is the most exciting for the ETF industry, while professional investors believe that innovative product development will be crucial too. This has been our value proposition for clients since we launched in Europe in 2014 and today, we have developed a truly differentiated product offering that stands out in an increasingly crowded and competitive market.'

Benelux professional investors have a variety of use cases for ETFs showcasing the flexibility and versatility of the wrapper, with over a quarter (28%) using ETFs as core portfolio holdings. Due to their important role in portfolio construction, ETFs that track popular benchmarks like the S&P 500 are where the bulk of assets are allocated.

However, Benelux investors also recognise the benefit of using ETFs and ETPs to access alternative asset classes such as commodities or cryptocurrencies (29%) and thematic equities (34%). This use case may explain why innovative product development is considered a key driver of European ETF growth, with ETFs democratising otherwise difficult to access asset classes.

Active ETFs

Unexpectedly, given the steady growth of active ETFs in Europe, survey respondents in Benelux ranked active ETFs as one of the lowest when asked about the key drivers for European ETF growth over the next decade (17%).

The survey also revealed differences of opinion between Benelux professional investors over how to define active ETFs. The majority (64%) believe they involve portfolio managers picking stocks for ETFs, either with full transparency (26%), semi-transparency (18%) or no transparency (20%). Elsewhere, 18% of Benelux investors surveyed believe an ETF tracking an index built with expert partners fits their view of an active ETF.

Marinof, added: 'ETFs are not just passive trackers and contrary to popular opinion, active ETFs are not a new invention. From an investment perspective, an ETF that is not market-cap weighted could be considered active. In fact, most ETFs positioned as active are not aligned with the high conviction, stock-picking definition that most investors have for active ETFs and exhibit many similarities with fundamentally weighted ETFs that have been around for decades. WisdomTree was a pioneer in launching such fundamentally weighted ETFs and has continued in that vein. 10 years after the launch of our first UCITS ETF in Europe, investors are still looking for innovative solutions to help them meet their investment objectives. There is a wide range of ETFs with varying approaches available to investors with the majority tracking traditional benchmarks, but our focus is on bringing differentiated and value-added products to market.'