ETF investments through digital platforms in Europe will hit half a trillion euros by 2026, according to BlackRock.
Speaking at a recent event, BlackRock’s senior leaders said they expect 10 million new investors across Europe to be using the firm’s ETF range over the next five years.
This forecast comes amid the growing adoption of ETF savings plans across Europe – especially in Germany – with current investment into BlackRock ETFs via plans increasing 22% to 3.1 million monthly contributions so far this year.
With tens of millions of investors now using digital platforms and ETF savings plans, BlackRock said banks are evolving their distribution models to cater to rising demand for self-directed investments.
Demand since the coronavirus outbreak in 2020 has developed rapidly with retail investors rushing to online platforms that offer portfolios based on low-cost building blocks.
Within two years, the amount invested into ETFs in Germany rocketed 254% from €166m a month in 2019 to €589m a month in 2021, according to data from Deutsche Boerse.
Research from ExtraETF also suggested the number of ETF savings plans via digital platforms could rise to 20 million monthly contributions in Germany by 2026, up from 4.9 million at the start of this year and 1.9 million by the end of 2019.
This trend has been powered by the rise of neobrokers and neobanks offering ETF solutions and expanding their offerings across Europe. Scalable Capital, for instance, saw its assets under management (AUM) double to €10bn in a year, with three-quarters of assets owned by 18–26-year-olds held in wrapped products.
Scalable’s counterpart, BUX, is now available in Germany, France, Italy, the Netherlands, Austria and Belgium while fellow neobank Trade Republic expanded its ETF savings plan offering across 17 European markets by the end of October.
BlackRock said these services have been boosted by the appeal of commission-free trading, which has had a significant role in the 40 million new self-directed investing accounts opened globally since 2020.
The asset manager added low-cost, diversified ETF portfolios combined with a US dollar-averaging approach will stand the acid test of current market volatility as investors will be able to benefit in the long run from a short-term dip, while not being burdened by high fees.
Christian Bimueller, head of digital distribution for continental Europe at BlackRock, commented: “The remarkable growth of digital investing and ETF savings plans across Europe has enabled millions of investors to participate in financial markets for the first time.
“This growth has been in part due to the phenomenal versatility that digital investment platforms offer – investors are able to capitalise on low fees and minimum investments, whilst new investors can build investments and knowledge of financial markets in an easily accessible format.”
In the UK, initiatives such as the Retail Distribution Review have only somewhat moved the needle on ETF uptake by retail investors. Nick Hutton, head of UK iShares and wealth business at BlackRock, argued traditional and challenger investment providers need to focus on the next generation of digitally savvy investors.
“Looking forward, our prediction is that the number of digital investing customers in the UK will reach 20 million by 2030,” Hutton said. “To engage with the next waves of digital investors, neobanks and brokers will have to look at the investment platform in a new way, producing innovative solutions that are altogether different.”
Indeed, the incoming generation of investors will enter at a time when a diversified broad-beta ETF portfolio can be built for as little as a weighted average fee of just 14 basis points and can be accessed on low-cost platforms.
New online interfaces also are also easy to understand, with zero-cost helplines, offering tax-efficient or self-directed pension accounts and sometimes even social elements such as investing forums.
Despite these innovations, there is still room for further disruption. Even in Germany, where retail usage of ETFs is particularly strong, large institutional uptake means retail assets make up only 10% of the market.
Similarly, in Italy, a retail performance and cost report published by the European Securities and Markets Authority (ESMA) in April revealed Italy has the highest management fees for equity products in Europe at almost 2%, a figure that could easily be undercut with the right education and S&P 500 and FTSE 100 ETFs with fees as low as seven basis points.
Further retail uptake of ETFs will also be a matter of changing countries’ investment cultures, such as the UK’s tendency towards legacy active managers and the tax advantage of mutual funds over ETFs in Spain.