ETF Industry Sees Record-Breaking Growth, But What’s Behind the Numbers?
As the year comes to a close, the European ETF industry is celebrating a major milestone: a record-breaking $252 billion in net new assets. This surpasses the previous record set in 2021 by more than $50 billion, making it a truly remarkable achievement.
A Closer Look at the Numbers
However, it’s essential to dig deeper and understand what’s driving these inflows. Are they a result of enthusiasm for ETFs as a delivery vehicle, or are they more closely tied to market risk sentiment? The data suggests the latter, with inflows this year being more than triple those seen in the turbulent year of 2022.
US Equity Dominance
Another trend that’s emerged is the increasing dominance of US equities in portfolios and investor psyches. A staggering 12 of the top 20 most popular ETFs are US equity strategies, with 17 of the top 20 being ETFs comprised of at least two-thirds US equities. This isn’t entirely surprising, given that mutual funds had already booked $280 billion in inflows by the end of October.
Shifts in the Wrapper’s Traditional Use Cases
More significant than the record-breaking inflows are the signs that the wrapper is moving away from its traditional use cases and spheres of influence in Europe. One area that’s gaining traction is active ETFs, which have seen assets under management (AUM) rise from $23 billion in January to $52 billion by October. Established managers like Janus Henderson, Robeco, and American Century are entering the space, anticipating a demand shift from active mutual funds to ETFs in Europe.
Regulatory Environment
Regulators are taking notice of this trend, with the Central Bank of Ireland and Luxembourg’s parliament and Commission de Surveillance du Secteur Financier (CSSF) making moves to attract issuers to their jurisdictions. The CBI has amended its stance on share class naming rules, while Luxembourg is offering favorable tax treatment on subscriptions and monthly disclosure of active ETF holdings.
The Rise of Digital Platforms
Another key dynamic at play is the role of low-cost, ETF-powered digital platforms in targeting a growing retail investor base. Amundi’s launch of Europe’s lowest-fee global equity ETF, followed by an accumulating share class, has been driven by demand from German retail investors. Scalable Capital’s partnership with DWS to launch a zero-fee ETF is another example of this trend. The symbiosis of ETF adoption by retail investors and the rise of low-fee, ETF-powered digital disruptors will be a key area to watch in the coming years.
A New Era for ETFs in Europe
While $250 billion in annual inflows is certainly impressive, it’s the new use cases and investor audiences that will shift our understanding of the wrapper’s role in Europe. As the industry continues to evolve, it will be interesting to see who the key stakeholders will be and how they will shape the future of ETFs in Europe.
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