In 2023, the ETF market surged by 28%, hitting over $1.8 trillion in assets under management, driven by robust market performance and investor preference, according to research.
The research by accountancy firm EY projected a 15% annual growth over the next five years for the European ETF market, with assets under management expected to surpass $4.5 trillion by 2030.
Active funds are estimated to be a key driver of ETF AUM growth, with a focus on boosting retail involvement, advancing ESG initiatives, and leveraging AI and digital assets opportunities.
Lisa Kealy, EMEIA ETF leader at EY, commented: “Investment in, and integration of, new tech will be crucial for all providers as they look to attract investors and meet their ever-changing and growing needs.”
In 2023, over 70% of European ETFs were based in Ireland, with assets under management projected to surpass $3 trillion by 2030. The study found that Luxembourg, holding a 29% market share, stands as Europe’s second-largest ETF market.
The study found that AI primarily conducts big data analysis, predicts patterns and trends and performs investment research. Additionally, in ETFs, AI is valuable for identifying and responding to market events, especially beneficial for index-tracking strategies.
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Global ESG ETF inflows dipped in 2023 as investors favored safer asset classes like large-cap equities, government bonds, or short-duration debt amid economic challenges.
However, ESG-focused ETFs are expected to remain a long-term investment theme. Europe, a global leader in this market, accounted for a quarter of ESG ETF flows in 2023.
Despite this, European ESG ETF investment totalled $345 billion by year-end, representing less than 5% of the global market and just 19% of the European market, signalling growth potential.
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Digital assets continue to gain traction across Europe, boosted by the approval from the US SEC for bitcoin ETFs in January 2024, the study found. Across Europe, digital assets represent $13 billion of ETPs, with wider adoption expected.
Hermin Hologan, EMEIA wealth & asset management leader at EY, added: “Innovation in digital assets should go some way to helping ETF providers achieve greater profitability.
On the sustainability side, ETF managers need to focus on both passive and active funds, ensuring keeping up with investor demands and communicating activity.”
