ETFs are on track to account for almost a quarter of global fund assets within the next four years, driven by the rise of active strategies and retail investor uptake, according to joint survey by consultancy firm Oliver Wyman and Waystone.
The report, titled The Renaissance of ETFs, said the wrapper will account for 24% of funds globally, up from 17% today, steadily increasing its share of all fund volumes across the US and Europe.
It said ETFs are now embarking on the next stage of growth, having achieved a 15% compound annual growth rate over the past 12 years, building on their $6.7trn assets under management (AUM).
The US is currently the dominant ETF player, with adoption driven by local tax advantages, however, there are signs increased visibility and access to ETFs are now driving adoption in Europe which currently accounts for 20% of the total ETF market, according to the report.
One of the main drivers is active strategies, with the number of products in the market increasing by 92% between 2016 and 2022 with assets standing at $22bn at the end of 2022.
Speaking to ETF Stream, Kamil Kaczmarski, head of asset management for Europe at Oliver Wyman, said: “The future avenue of growth in Europe will come from players who have historically been reluctant to enter the ETFs as they did not want to be bucketed into the field of passive players. Now, there is no good excuse not to explore the landscape.”
He added the significant increase in active ETF launches in Europe, particularly in 2021, signals that European fund providers are following in the US’s footsteps and are shifting their focus more towards active strategies.
US asset managers have also been launching active ETFs in Europe with the likes of JP Morgan Asset Management, Invesco and Fidelity International all present in the market.
ETFs in vouge for retail
Another key trend set to drive the growth of the European market is retail investing, driven by digital wealth manager platforms and neo-banks such as Trade Republic and Scalable Capital.
The area is anticipated to provide huge growth for the ETF market over the next few years, with the investment volume invested into ETFs by retail investors expected to quadruple to around €350bn, according to BlackRock.
“Speaking to distributors in Europe it is less a question of what is behind particular funds or what is the return, retail clients just want to see ETFs in the portfolio as they understand the products are in vogue,” Kaczmarski said.
He added the impact is expected to be higher in Europe than the US as retail investors are underpenetrated.
“Retail investors are becoming increasingly cost sensitive and aware of cost differences between investment vehicles, which is generally favourable for ETFs due to the product’s cost advantages. A potential European-wide ban on retrocessions is expected to accelerate this trend significantly,” he said.
Kaczmarski added institutional clients are using ETFs “more and more” to replicate their main strategies instead of using them only as a tactical allocation tool.
“Historically the main use of ETFs is to simply go in and out of markets relatively quickly but more and more investors found it to be a cost-efficient and transparent way to replicate some of their strategies,” he said.