The year 2025 will be remembered as the best year in the history of the European ETF industry so far. Record high assets under management and estimated net inflows on a level that has never been seen before are the main reasons for this. Additionally, investors in Europe witnessed a steadily increasing number of ETF promoters, as the introduction of actively managed ETFs has opened new business opportunities for the managers of actively managed mutual funds. Obviously, the increasing number of ETF promoters led to an ever-growing number of ETFs available to investors in Europe.
Furthermore, the ETF gold rush is not only changing the fund industry. It also changes the way how and other financial intermediaries offer saving products to retail investors. Following the success of ETFs in Germany, ETF promoters, banks, and intermediaries try to find ways to copy the “German way” and win retail investors for their platforms. And they may get successful with this, as the already established neo-brokers expanding their geographical footprint. At the same time established fund platforms which were not able to handle ETF trading in the past, are changing their business models and offering ETF trading. Most importantly, some of the established brokers will start to offer the trading of fractional shares (one of the main reasons why ETFs became so successful in Germany), allowing their customers to trade for a fixed amount (as low as one euro or pound sterling) instead of a fixed number of shares.
I am pretty sure that the level of estimated net inflows we witnessed over the course of 2025 will easily be topped in the future, when the main market players pave the way and enable all (retail) investors in Europe to invest comfortably in ETFs. This means easy access and fractional trading will be key for the success of ETFs in the markets outside of Germany. In addition to this, the increasing number of (actively) managed ETFs should lead to increasing investor demand. Last but not least, a change in tax laws in some countries may make ETFs even more attractive for investors. That said, the proposed retirement savings account saving in Germany might become another stimulus for the future growth of ETFs in Germany.
With regard to the above, the success story of ETFs in Europe should continue over the foreseeable future. That said, since the ETF structure is only a distribution wrapper, the success for the single ETFs and their promoters will heavily depend on the product quality. The tide might lift all boats, but at some point of time investors may realize that their ETF(s) behave rather like a lame duck than an agile speedboat and may, therefore, switch from one ETF to another like we have seen it in the segment of mixed-assets mutual funds before.
The views expressed are the views of the author, not necessarily those of LSEG.
This article is for information purposes only and does not constitute any investment advice.
