State Street: The expansion of European ETFs accelerates
What’s the next big thing for ETFs? State Street's experts share their predictions for the megatrends that are set to shape each major region throughout 2025.
According to Ken Shaw, Head of ETF Solutions EMEA, the top trends for Europe include record growth of the overall market, the acceleration of actively managed ETFs, the move toward unlisted/listed share classes, the ongoing deceleration of ESG, and the increased adoption by retail investors.
Record growth expected
European ETF market flows had decelerated since the explosive record-setting growth experienced after the COVID lockdowns ended in 2021. But in 2024, ETFs roared back to life and established a new highwater mark with inflows eclipsing US$270 billion. This was close to 40 percent more than the previous record. ETFs brought in flows across all asset classes (equity, fixed income, cryptocurrency) and strategies (active, ESG, leveraged/inverse, passive, smart beta).
'We believe this growth will continue as the market expands beyond institutional investors and retail adoption accelerates,' Shaw says. 'Additionally, the market fragmentation of 25 jurisdictions and 29 exchanges is in the process of modernization with the advent of a consolidated tape. Finally, we expect to see an expansion of local and global managers entering the European ETF marketplace, offering more choice and innovation to the market.'
Increasing percentage of active ETFs
Europe has seen the same ramp-up of active assets under management and flows as the US market experienced, beginning in 2019. In 2024, Europe saw a large uptick in raw inflows (from US$7 billion to US$20 billion), products (from 103 to 178) and providers (28 to 35). The most profound statistic was 2024 flows making up 74 percent of the previous year’s assets under management.
'We expect this trend to continue with more issuers and products entering the market. This will include a combination of standalone strategies and the expansion of unlisted funds launching a listed share class. Europe allows for this structure today and based on our conversations with clients, there is significant interest in leveraging it. An additional tailwind entering 2025 is the decision by Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF) to exempt active ETFs from subscription tax and allow delayed portfolio disclosure. We expect other jurisdictions to follow suit,' Shaw explains.
Retail adoption ramps up
Although institutional investors make up a significant majority of the European market, retail investors are becoming a force. ETF Savings Plans increased by over 40 percent in the last year from 7.7 million to 10.8 million. Adoption of ETFs has been broad across the Continent with Belgian retail investors experiencing a 40% increase from 40,000 to 56,000, France (up 72%) saw an increase from 296,000 to 509,000, with adoption in Germany rising 25 percent from 2.8 million to 3.5 million. Many of these investors have savings plans with multiple digital platforms, neobrokers and robo advisors.
'We expect this trend not only to continue, but to accelerate. Retail investors using ETFs are typically younger than those investing in other investment vehicles, in their prime earnings (and savings) years,' Shaw outlines. 'As a result, not only will the number of investors continue to rise, but the amount of ETF assets held will also rise.'
