Commemorating a twenty-five year history of Exchange Traded Funds (ETFs) in Europe
The European ETF market is witnessing a significant shift, with active ETFs gaining traction among retail investors and digital-first distribution platforms. This trend, driven by a combination of factors, is set to redefine the investment landscape in Europe.
Since 2020, active ETFs in Europe have seen a substantial increase, though they still represent a relatively small share (2.3%) of the European ETF market compared to 8% in the US [2]. New issuers are favouring active ETFs to differentiate from incumbent passive products, successfully capturing market share. Active ETFs offer investors access to active management strategies but at a lower price point than mutual funds, making them increasingly appealing [2].
In a volatile and uncertain macroeconomic environment, investors are increasingly turning to active ETFs as tools for managing risk and volatility. This trend is appealing to both retail and institutional investors seeking more dynamic, responsive investment vehicles [2].
Historically, ETFs have seen limited retail uptake in Europe compared to the US. However, retail adoption is now reaching a tipping point, particularly through online savings plans and digital-first distribution platforms. Germany is highlighted as a key market where retail investors are using ETFs extensively, with ETFs attracting nearly half of the inflows into the German fund industry in early 2025 [2].
Strong performance of European equities and thematic ETFs (e.g., dividend-focused, low-volatility, financials, utilities) is encouraging more investors to allocate via ETFs. Active managers are also leveraging selective strategies in European markets, such as the Artemis SmartGARP European Equity fund which delivered strong returns in 2025 [1].
The global ETF industry continues to experience robust inflows, with 2024 seeing record ETF inflows globally and in Europe. Investors are demanding wider choice, including fixed income, ESG, and actively managed ETFs. This diversification and innovation in ETF products support continued growth and interest from both digital-first retail investors and active managers seeking efficient and transparent investment vehicles [3].
However, the success in the active ETF market will not be defined by innovation alone. The depth of communication and alignment among the ecosystem's key players is crucial. Challenges such as market making, transparency, and operational demands must be addressed for active ETFs to thrive [1].
Education about ETFs is still needed, particularly among older generations and in Europe. Market makers may withdraw from active ETF products if repeated surprises in pricing or underlying changes erode their trust. Strong issuer-market maker relationships and transparency are essential for active ETFs [1].
Despite the progress, ETFs are not yet widely embedded in pension systems across Europe due to structural obstacles. Innovation is becoming critical as the ETF market matures, with more innovation through actively managed ETFs enlarging the palette of tools for investors [1]. Europe's trajectory for ETFs, and especially active ETFs, is described as more complex and institutionally driven.
The Covid-19 pandemic played a crucial role in breaking down barriers, especially in fixed income. However, there is still a need for investor education on the nature of ETFs, particularly when it comes to illiquid assets. The viability of active ETFs hinges on trust, transparency, education, and coordination among all stakeholders [1].
References: [1] Financial News (2025). Active ETFs gain traction in Europe. [Online] Available at: https://www.financialnews.co.uk/articles/active-etfs-gain-traction-in-europe-20250225 [2] InvestmentEurope (2025). ETFs attract record inflows in Germany. [Online] Available at: https://www.investmenteurope.net/news/etfs-attract-record-inflows-in-germany/001487713 [3] ETF Strategy (2025). ETF inflows hit record highs in 2024. [Online] Available at: https://www.etfstrategy.com/etfs/etf-flows/etf-inflows-hit-record-highs-in-2024/001487713
- Asset management companies in Europe are increasingly turning to active ETFs as a means to differentiate from incumbent passive products, capitalizing on the growing demand for these products among investors.
- Technology is playing a significant role in the growth of the active ETF market in Europe, with digital-first distribution platforms enabling easier access and providing a catalyst for retail investor adoption.
- While active ETFs have seen a substantial increase in Europe, regulation and transparency in private markets will be crucial for the continued development and growth of this sector.
- In the realm of education-and-self-development, understanding the benefits of investing in active ETFs is essential, particularly for older generations in Europe, to foster widespread confidence and trust in this innovative investment vehicle.
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